US District Court for the Southern District of New York dismissed on 18 August, 2016, all claims in a securities class action lawsuit against US leading forex broker Forex Capital Markets (FXCM) and certain officers filed by institutional investor in relation to the Swiss National Bank (SNB)-caused crisis in early 2015, the broker said on Tuesday.
The plaintiff who purchased FXCM stocks from mid 2013 to early 2015 claimed that he suffered significant losses during the unpredictable market event in January 2015 when the SNB removed the peg on the EUR/CHF pair in mid-day without any warning. The complaint was filed “on behalf of all those who purchased or otherwise acquired FXCM stock during the Class Period and were damaged thereby“.
As a result of the unexpected SNB move, FXCM and its clients suffered great losses. The markets went crazy at the time and many brokers fell deep in trouble. FXCM had liabilities that exceeded its assets by some $175 million, putting its clients’ funds in great risk. According to the claim, the plaintiff attributed FXCM’s loss to its allegedly risky business model and lack of a risk management department. In addition to this, they accused the broker in insider trading.
“Plaintiff alleges that Defendants made materially false or misleading statements relating to FXCM’s business model and risk management practices, and that these statements misled investors about the risky nature of FXCM’s business, causing hundreds of millions of dollars in losses to class members,“ the court order read.
However, the Court found no ground for the raised claims and said that the plaintiff’s allegations were not meaningful.
“Taken collectively, plaintiff’s allegations fail to support a strong inference of scienter based on motive; even if Plaintiff’s allegations did support such an inference, that inference is weaker than the non-fraudulent inferences,“ the court order read.
The plaintiff was given thirty days to file an amended complaint, should he choose to do so. The first claim was filed on 8 May, 2015.
The way FXCM handled the SNB event in early 2015 also got the regulatory attention. On Friday, the US Commodity Futures Trading Commission (CFTC) said it had charged FXCM with undercapitalization, failure to timely report its undercapitalization violation, and guaranteeing against customer losses at the time of the CHF-related crisis. Later, the broker issued a statement, saying it admits to having a temporary capital shortfall, bur denied the rest of the regulator’s accusations. The case is yet to be considered in court.
FXCM is a registered futures commission merchant (FCM) and a retail forex dealer (RFED) with the US Commodity Futures Trading Commission (CFTC). It has units registered and regulated with the relevant authorities in the US, the UK, Australia, and France.
The full court order can be viewed here.