Among the many issues now facing the newly named Global Brokerage Inc., formerly called FXCM, a recently filed class action lawsuit has received little coverage.
What does the lawsuit allege?
The lawsuit alleges that Global Brokerage Inc. failed to disclose material facts regarding its no trading desk platform.
“FXCM made false statements to the National Futures Association regarding the Company’s position; the Company was taking positions opposite to its retail customers; and as a result of the foregoing, FXCM’s public statements were materially false and misleading at all relevant times,” the lawsuit states.
The lawsuit was filed shortly after the Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA) jointly filed an action on February 6, 2017, citing Global Brokerage Inc. for failing to disclose a conflict of interest in its no trading desk; specifically, the company marketed the platform as one where Global Brokerage Inc. simply acted as a middle man when in fact its own subsidiary was trading through its platform.
That subsidiary was often given priority in terms of trades.
The lawsuit alleges that for approximately four years the company hid this relationship from the CFTC, the NFA, and thereby the public, specifically its shareholders.
In effect, the suit argues that if investors had known about this relationship they would not have purchased shares in the company, and most importantly, the suit argues the company had a fiduciary duty to disclose this relationship.
The fallout from the CFTC/NFA findings has already led FXCM changing its name to Global Brokerage Inc and to selling its US subsidiary to Gain Capital.
The Consequences for Stockholders
“On February 6, 2017, the Commodities Futures Trading Commission (‘CFTC’) banned FXCM from operating in the U.S. after the CFTC found that FXCM had engaged in false and misleading solicitations of the Company’s retail foreign exchange customers by concealing” the suit stated, “its relationship with FXCM’s most important market maker and the fact that the Company’s ‘No Dealing Desk’ platform had conflicts of interest with FXCM’s customers.”
The stock price tumbled 52.55% on the next trading day, according to the suit.
“As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.” The lawsuit states.
What is a class action lawsuit?
A class action lawsuit is a lawsuit where several people or other entities all have the same grievance and they all file as one lawsuit.
The most famous, as well as largest payout, class action lawsuit was filed on behalf of 700,000 smokers against several tobacco companies. A jury ultimately awarded the plaintiffs an astounding $145 billion though that was later reduced significantly on appeal.
While the scope of this lawsuit will not reach anywhere near those levels, Global Brokerage Inc. has plenty to fear. A dollar amount has not yet been listed.
According to this lawsuit, any shareholder who had shares of FXCM from March 15, 2012-February 6, 2017, is eligible to join the lawsuit. This payout could easily dwarf the money the company has available.
The Industry Spread sent emails Jeremy Lieberman, Patrick Dahlstrom, and Peretz Bronstein, the three attorneys listed on the lawsuit, for clarification on those dates but those emails were left unreturned.
The end date is the day of the CFTC/NFA announced their findings. It’s not clear what the beginning date entails though 2012 is when the FXCM subsidiary began to use the platform.
Who are the attorneys?
The suit is spearheaded by two law firms: Pomerantz LLP and Bronstein, Gewirtz, and Grossman LLC.
Pomerantz LLP, which has been in practice for over eighty years according to its website, specializes in securities law and the firm boasts of “recovering well over $1 billion on their (clients) behalf. We consistently shape the law, having won landmark decisions that have expanded and protected investor and consumer rights, and initiated historic corporate governance reforms.”
Bronstein, Gewirtz and Grossman LLC also specializes in class action and securities law. The firm has filed class action lawsuits on behalf of shareholders against such well-known names as Facebook, Qualcom, Yahoo, and Aetna.
Peretz Bronstein, the lead attorney for the firm, is a graduate of Harvard law school, who spent time at Skadden Arps, one of the world’s leading law firms, with offices in London, New York, Toronto, Hong Kong, Beijing, Singapore, Tokyo, and other places all over the world.
Can shareholders join the suit?
According to Bronstein, Gewirtz and Grossman’s website, shareholders who bought shares during the period March 15, 2012-February 6, 2017, can join the lawsuit until April 17, 2017.
The Industry Spread emailed Jaclyn Sales, the public affairs officer for Global Brokerage Inc. but Ms. Sales declined to comment.
Global Brokerage Inc. has not provided a statement or press release about this lawsuit.