Fund distribution looms in investor lawsuit against FXCM Inc

Several months after the New York Southern District Court approved a $6.5 million settlement in the class action lawsuit against FXCM Inc (now known as Global Brokerage Inc), a fund distribution seems closer.

On December 20, 2023, Class Representatives Shipco Transport Inc. and E-Global Trade and Finance Group, Inc. (together, “Plaintiffs”) submitted their motion for entry of the Proposed Order for Distribution of Class Action Settlement Funds.

The claims administrator analyzed 8,252 Claim Forms received through August 8, 2023 and determined that 452 valid and properly-documented claims were received. Of these 452 claims, 447 were timely (i.e., postmarked or received no later than June 7, 2023) and 5 were postmarked or received after June 7, 2023 but on or before August 8, 2023.

These valid claims represent Recognized Losses of $3,950,772.91.

Plaintiffs request that the Court approve all 452 valid claims, including the 447 Timely Valid Claims and the 5 Late Valid Claims. The Late Valid Claims have not caused delay to the distribution of the Net Settlement Fund or otherwise prejudiced any Authorized Claimant.

The Claims Administrator has identified 7,751 claims that it recommends for complete rejection. The reasons for rejection included: (i) claims with no Recognized Losses; (ii) claims with shares that were not purchased or otherwise acquired, but were received, granted by gift, inheritance, or operation of law; (iii) claims with shares that were purchased outside of the Class Period; (iv) claims with shares sold short; (v) claims filed for securities other than Global Brokerage, Inc., f/k/a FXCM, Inc. Class A common stock; (vi) duplicate claims filed; (vii) claims withdrawn by the filing entity; and (viii) fraudulent claims.

The plaintiffs brought claims against FXCM, Dror Niv, and William Ahdout under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b- 5 promulgated thereunder. Shipco and E-Global bring claims on behalf of themselves and a certified Class comprising “all persons and/or entities that purchased or otherwise acquired publicly traded Global Brokerage, Inc., f/k/a FXCM Inc. (“FXCM”) Class A common stock, during the period March 15, 2012 through February 6, 2017, both dates inclusive.” 683 Capital brings its claims on an individual basis.

The plaintiffs alleged the defendants committed securities fraud by misrepresenting and omitting material facts about FXCM’s secret relationship with Effex Capital, LLC. FXCM offered foreign exchange trading to retail customers, touting their “No Dealing Desk” or “agency model,” where instead of FXCM trading directly opposite the customer, FXCM connected the customer with a liquidity provider offering the best price, with FXCM merely adding a mark-up to the price as a commission.

However, according to the plaintiffs, unbeknownst to FXCM’s customers and investors, FXCM was secretly receiving kickbacks of roughly 70% of the trading profits from Effex, one of FXCM’s primary liquidity providers who was trading against FXCM’s customers.

According to the plaintiffs’ complaint, Effex was run by John Dittami, whom Defendants Niv and Ahdout hired at FXCM to create an internal trading system, EES, that would compete with external market makers. Dittami’s contract with FXCM provided for a 70-30 split of EES’s trading profits (70% to FXCM). When FXCM’s compliance department decided that FXCM could not truthfully say it was operating an agency model if EES was trading against FXCM’s customers, Defendants decided to spin off EES as Effex. However, FXCM and Effex kept the 70-30 split of trading profits—with Effex swapping in for Dittami and FXCM keeping its 70% share—which they disguised as “payments for order flow.” FXCM provided critical support to Effex for years, and Effex relied on FXCM to stay afloat.

Effex became one of FXCM’s biggest liquidity providers and Defendants provided special trading advantages to direct more of FXCM’s trading volume to Effex.

In 2013 and 2014 the National Futures Association (NFA) and the U.S. Commodities Futures Trading Commission (CFTC) began investigating FXCM’s relationship with Effex. On February 6, 2017, after the close of trading, the NFA and CFTC announced regulatory settlements with the defendants, revealing the undisclosed relationship between FXCM and Effex and imposing severe penalties. The next day, the price of FXCM securities dropped precipitously, harming Plaintiffs and the Class.

The Settlement provides for a Settlement Fund of $6,500,000 in cash. Plaintiffs’ damages expert estimated maximum aggregate damages of $17.5 million in Plaintiffs’ best-case scenario.