Do not invest more money than you can afford to lose.
Forex Capital Markets (FXCM) has $155 million outstanding payment to US lender Leucadia National Corp. in the form of principal, interest and fees, according to a shareholders’ letter issued by the bank. The broker has already made payments to the lender in the amount of $238 million.
In 2015, the broker drew a $300 million cash credit from the bank. Its clients experienced heavy losses and generated negative equity balances of combined some $225 million as a result of the Swiss franc’s (CHF) unpegging from the Euro (EUR).
Leucadia owns a 49.9% stake in FXCM Group. The rest is in the hands of Global Brokerage Inc., which just got renamed from FXCM Inc. Leucadia said it would receive up to 65% of future FXCM cash distributions after principal and interest are fully repaid.
Earlier in February we informed you that FXCM was forced to exit the US, where it was the largest market player, and to sell its clients there to peer Gain Capital. The completion of the customer base transfer was just finalized. The proceeds from the sale are to be used for partial repayment of the Leucadia loan.
The broker’s US arm Forex Capital Markets LLC got banned by the US futures regulators. It was charged with taking positions against customers, concealing that a key market maker was tightly related to the broker, and misrepresenting its “No Dealing Desk” platform as providing no conflict of interest with customers. Moreover, the broker’s principals made false statements to the National Futures Association (NFA) in regards to these practices. The brokerage neither admitted nor denied the allegations, but nevertheless agreed on a $7 million settlement.
In addition, FXCM paid a fine of $650,000 to the US Commodity Futures Trading Commission (CFTC) regarding its US subsidiary’s undercapitalization at the time of the CHF-related crisis.
“While we are disappointed that these events from a number of years ago (prior to our investment) could not be resolved in a more favorable manner, we believe that, with its new leadership, the cost savings that will be realized when FXCM withdraws from serving customers in the US and the vigor of FXCM’s global businesses, FXCM remains well positioned to continue to recover from past events, to grow its platform, to raise profits and margins and to increase all stakeholders’ value,” Leucadia said in the letter.
With the new name, Global Brokerage Inc. also got a new management, which includes representatives of Leucadia. The renaming aims “to avoid any possible confusion among customers or others”, following the regulatory issues.
FXCM Group operates via several other subsidiaries, including UK-licensed Forex Capital Markets Ltd. and Australia-regulated FXCM Australia Pty. Ltd.
