After 6 Years Global Brokerage Settles for $6.5m in Class Action

Monday, 06/02/2023 | 12:06 GMT by Damian Chmiel
  • Global Brokerage's case against its former investors began in 2017.
  • After six years, the brokerage decided to settle for 37% of the potential damage suffered by traders.
court decision

The legal representatives of Global Brokerage, Inc., formerly known as FXCM Inc. (FXCM), Drew Niv, and William Ahdout, have filed a proposed settlement with the lead plaintiffs of the class-action lawsuit, E-Global Trade and Finance Group, Inc. (E-Global), L.P., and Shipco Transport Inc. (Shipco).

According to the court documents from 3 February 2023 seen by Finance Magnates, the settlement amount reached $6,500,000. It corresponds to 37% of the potential damages suffered by the investors, estimated at $17.5 million in a best-case scenario.

The case against GLBR is reaching its conclusion after more than six years. It began in February 2017 when Tony Khoury filed the first of four related shareholder actions against GLBR, alleging violations of the Securities Exchange Act of 1934.

The newest court filing states that "all of the terms of the settlement and resolution of this matter by the Parties, and is intended by the Parties to fully and finally compromise, settle, release, resolve, remise, discharge, and dismiss with prejudice the Released Claims (as defined herein) against the Released Parties."

As part of the pending case, the plaintiffs wanted all persons and entities who purchased publicly listed Class A common stock of Global Brokerage, Inc. between 15 March 2012 and 6 February 2017 to be able to seek redress.

In December 2022, a private mediation took place, which resulted in a decision to resolve this action completely. On 23 December 2022, both parties executed a binding term sheet that set forth the material terms and obligations with respect to the settlement.

As part of the agreement, the defendants have denied and continue to deny any allegations of fault, wrongdoing or damages arising from any of the conduct. They have denied that the plaintiffs or participants in the lawsuit have suffered damages as a result of any of the conduct alleged in the case.

"The Individual Defendants continue to believe the claims asserted against them in the Action are without merit and have agreed to enter into the Settlement set forth in this Stipulation solely to avoid the expense, distraction, time and uncertainty associated with the Action," the settlement document added.

Watch the recent FMLS22 panel on retail traders and post covid challenges.

The Allegations

The plaintiffs alleged that the brokerage firm had committed securities fraud. It allegedly provided incomplete information and omitted material facts about its relationship with Effex Capital.

GLBR falsely represented its purported agency-trading model and its relationship with Effex Capital. The firm claimed to provide trading on a No Dealing Desk (NDD) model where it is not a party to the trade but only connects the retail trader to the liquidity provider that offers the best price at the time.

GLBR's profit was supposed to be only a margin to the execution price, but as it turned out, the broker received up to 70% return on the revenue generated by Effex, which was one of the firm's primary liquidity providers at the time, additionally investing against GLBR's clients.

In the company's financial statements, this illegal procedure was disguised as 'payments for order flow', with the former Global brokerage providing unfair competitive advantages to Effex in order to channel as much of its clients' trading volumes to the firm as possible.

It is worth recalling that GLBR's activities were previously part of the investigations of the U.S. Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA). In February 2017, the NFA and the CFTC announced settlements with the broker, revealing for the first time the relationship that GLBR had with Effex. FXCM had to pay $7 million in a settlement with the CFTC and forgo domestic regulation, leaving the U.S. market.

In a separate settlement, the NFA revealed that between 2010 and 2014, FXCM received $77 million in rebates from Effext.

From FXCM to Global Brokerage

In the aftermath of its regulatory clampdown, FXCM changed its name to Global Brokerage in late February 2017. However, the brokerage services part of its business remained with the FXCM name.

The report published by Global Brokerage for the three months ended 30 September 2022 showed total net revenues of $32.3 million, while for the first nine months of 2022, they came in at $101.2 million. It was a slightly lower outcome than the $37.8 million reported in Q2 2022.

The legal representatives of Global Brokerage, Inc., formerly known as FXCM Inc. (FXCM), Drew Niv, and William Ahdout, have filed a proposed settlement with the lead plaintiffs of the class-action lawsuit, E-Global Trade and Finance Group, Inc. (E-Global), L.P., and Shipco Transport Inc. (Shipco).

According to the court documents from 3 February 2023 seen by Finance Magnates, the settlement amount reached $6,500,000. It corresponds to 37% of the potential damages suffered by the investors, estimated at $17.5 million in a best-case scenario.

The case against GLBR is reaching its conclusion after more than six years. It began in February 2017 when Tony Khoury filed the first of four related shareholder actions against GLBR, alleging violations of the Securities Exchange Act of 1934.

The newest court filing states that "all of the terms of the settlement and resolution of this matter by the Parties, and is intended by the Parties to fully and finally compromise, settle, release, resolve, remise, discharge, and dismiss with prejudice the Released Claims (as defined herein) against the Released Parties."

As part of the pending case, the plaintiffs wanted all persons and entities who purchased publicly listed Class A common stock of Global Brokerage, Inc. between 15 March 2012 and 6 February 2017 to be able to seek redress.

In December 2022, a private mediation took place, which resulted in a decision to resolve this action completely. On 23 December 2022, both parties executed a binding term sheet that set forth the material terms and obligations with respect to the settlement.

As part of the agreement, the defendants have denied and continue to deny any allegations of fault, wrongdoing or damages arising from any of the conduct. They have denied that the plaintiffs or participants in the lawsuit have suffered damages as a result of any of the conduct alleged in the case.

"The Individual Defendants continue to believe the claims asserted against them in the Action are without merit and have agreed to enter into the Settlement set forth in this Stipulation solely to avoid the expense, distraction, time and uncertainty associated with the Action," the settlement document added.

Watch the recent FMLS22 panel on retail traders and post covid challenges.

The Allegations

The plaintiffs alleged that the brokerage firm had committed securities fraud. It allegedly provided incomplete information and omitted material facts about its relationship with Effex Capital.

GLBR falsely represented its purported agency-trading model and its relationship with Effex Capital. The firm claimed to provide trading on a No Dealing Desk (NDD) model where it is not a party to the trade but only connects the retail trader to the liquidity provider that offers the best price at the time.

GLBR's profit was supposed to be only a margin to the execution price, but as it turned out, the broker received up to 70% return on the revenue generated by Effex, which was one of the firm's primary liquidity providers at the time, additionally investing against GLBR's clients.

In the company's financial statements, this illegal procedure was disguised as 'payments for order flow', with the former Global brokerage providing unfair competitive advantages to Effex in order to channel as much of its clients' trading volumes to the firm as possible.

It is worth recalling that GLBR's activities were previously part of the investigations of the U.S. Commodities Futures Trading Commission (CFTC) and the National Futures Association (NFA). In February 2017, the NFA and the CFTC announced settlements with the broker, revealing for the first time the relationship that GLBR had with Effex. FXCM had to pay $7 million in a settlement with the CFTC and forgo domestic regulation, leaving the U.S. market.

In a separate settlement, the NFA revealed that between 2010 and 2014, FXCM received $77 million in rebates from Effext.

From FXCM to Global Brokerage

In the aftermath of its regulatory clampdown, FXCM changed its name to Global Brokerage in late February 2017. However, the brokerage services part of its business remained with the FXCM name.

The report published by Global Brokerage for the three months ended 30 September 2022 showed total net revenues of $32.3 million, while for the first nine months of 2022, they came in at $101.2 million. It was a slightly lower outcome than the $37.8 million reported in Q2 2022.

About the Author: Damian Chmiel
Damian Chmiel
  • 1593 Articles
  • 36 Followers
About the Author: Damian Chmiel
Damian's adventure with financial markets began at the Cracow University of Economics, where he obtained his MA in finance and accounting. Starting from the retail trader perspective, he collaborated with brokerage houses and financial portals in Poland as an independent editor and content manager. His adventure with Finance Magnates began in 2016, where he is working as a business intelligence analyst.
  • 1593 Articles
  • 36 Followers

More from the Author

Retail FX

!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}