The class action lawsuit brought against FXCM Inc (now known as Global Brokerage Inc) back in February 2017 has finally been closed. This happens after the New York Southern District Court has granted final approval of the $6.5 million settlement reached between FXCM Inc stockholders and the defendants, including Drew Niv and William Ahdout.
The order and final judgment, signed by Judge Ronnie Abrams, stipulate that the settlement is fair, reasonable and adequate, and in the best interests of the Class. This Court further found that the Settlement was the result of good faith, arm’s-length negotiations between experienced counsel representing the interests of Class Representatives, Class Members, and the Individual Defendants.
Class Counsel are awarded one third of the Settlement Amount, or $2,166,666.67, in fees, which the Court finds to be fair and reasonable, and $662,469.61 in reimbursement of out-of-pocket expenses.
The Individual Defendants, FXCM, and the Released Parties will have no responsibility for, and no liability whatsoever with respect to, any payments to Class Counsel, Class Representatives, the Class and/or any other Person who receives payment from the Settlement Fund.
The certified Class comprises:
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. Excluded from the Class are: (i) Defendants; (ii) current and former officers, employees, consultants and directors of FXCM and FXCM Holdings, LLC; (iii) siblings, parents, children, spouses, and household members of any person excluded under (i) and (ii); (iv) any entities affiliated with, controlled by, or more than 5% owned by, any person excluded under (i) through (iii); and (v) the legal representatives, heirs, successors or assigns of any person excluded under (i) through (iv).
Let’s recall that, the plaintiffs in this lawsuit include (inter alia): Lead Plaintiff 683 Capital Partners, LP and Class Representatives Shipco Transport Inc. and E-Global Trade and Finance Group, Inc.
The plaintiffs bring 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.
The Settlement represents a strong result for the Class, returning approximately 37% of maximum potential damages to investors. This best-case scenario assumes that Plaintiffs prevail at trial and the Court and jury accept Plaintiffs’ damages theory, including proof of loss causation, in the full amount proffered by Plaintiffs’ expert. Anything less than a complete victory would decrease, or potentially eliminate, recoverable damages.
