Several months after the Southern District Court of New York approved a $6.5 million settlement in the class-action lawsuit against FXCM Inc (now known as Global Brokerage Inc), the distribution of funds appears closer.
On December 20, 2023, class representatives Shipco Transport Inc. and E-Global Trade and Finance Group, Inc. (collectively, “Plaintiffs”) filed their motion to enter the Proposed Order to Distribute Class Action Settlement Funds.
The claims administrator analyzed 8,252 claim forms received through August 8, 2023 and found that 452 valid and properly documented claims were received. Of these 452 claims, 447 were timely (ie, stamped or received no later than June 7, 2023) and 5 were stamped 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 ask the Court to approve all 452 valid claims, including 447 timely valid claims and 5 late valid claims. The Overdue Valid Claims have not caused a delay in the distribution of the Net Settlement Capital or otherwise prejudiced any Authorized Claimant.
The Claims Manager has identified 7,751 claims that it recommends rejecting outright. Reasons for rejection included: (i) claims without Recognized Damages; (ii) claims with shares not purchased or otherwise acquired, but received, granted by gift, inheritance or deed; (iii) claims with shares purchased outside the Class Period. (iv) claims with shares sold open; (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 (vi) duplicate claims filed; (vii) claims withdrawn by the filing entity; and (viii) fraudulent claims.
Plaintiffs brought claims against FXCM, Dror Niv and William Ahdout pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder his. Shipco and E-Global bring claims on behalf of themselves and a certified Class that includes “all persons and/or entities that purchased or otherwise acquired trading Global Brokerage, Inc., f/k/a FXCM Inc. (“FXCM”) Class Common Stock, during the period March 15, 2012 to February 6, 2017, both dates inclusive.” 683 Capital presents its claims on an individual basis.
The plaintiffs alleged that the defendants committed securities fraud by misrepresenting and omitting material facts regarding FXCM’s secret relationship with Effex Capital, LLC. FXCM offered forex trading to retail clients, advertising the “No Dealing Desk” or “agency”, where instead of FXCM trading directly opposite the client, FXCM connected the client with a liquidity provider that offered the best rate, with FXCM simply adds a markup to the price as a commission.
However, according to the plaintiffs, unbeknownst to FXCM’s clients and investors, FXCM secretly received kickbacks of approximately 70% of trading profits from Effex, one of FXCM’s primary liquidity providers that traded against FXCM’s clients.
According to the plaintiffs’ complaint, Effex was managed by John Dittami, whom defendants Niv and Ahdout hired at FXCM to build 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 trading profits (70% to FXCM). When FXCM’s compliance department decided that FXCM could not honestly say it was operating an agency model if EES was doing business with FXCM’s clients, the defendants decided to spin off EES as Effex. However, FXCM and Effex maintained a 70-30 split of trading profits—with Effex trading Dittami and FXCM keeping its 70% share—which they disguised as “order flow payments.” FXCM has provided significant support to Effex for years, and Effex has relied on FXCM to survive.
Effex became one of FXCM’s largest liquidity providers, and the 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 US 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, disclosing the undisclosed relationship between FXCM and Effex and imposing severe penalties. The next day, the price of FXCM’s securities plummeted, harming Plaintiffs and the Class.
The Settlement provides for a Settlement Fund of $6,500,000 in cash. Plaintiffs’ damages expert estimated a maximum total loss of $17.5 million in Plaintiffs’ best-case scenario.