Class action lawsuit launched against FXCM for fraud and racketeering!

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1

I thought this mob was supposed to be large and well regulated? Looks like they are as crooked as they come in reailty. Fraud and racketeering!

Morgan Business Trial Group Files Class Action Lawsuit Against Nation’s Largest Forex Dealer – FXCM
Federal Court Claim Alleges Fraud and Racketeering by Forex Capital Markets, LLC
ORLANDO, Fla., Feb. 10, 2011 (GLOBE NEWSWIRE) – The Business Trial Group of Morgan & Morgan, P.A. filed a class action lawsuit today against Forex Capital Markets, LLC (FXCM) (NYSE:FXCM) alleging fraud and racketeering by the nation’s largest Forex dealer.

The lawsuit, filed in the United States District Court for the Southern District of New York (Manhattan Division), alleges that FXCM has bilked thousands of customers out of hundreds of millions of dollars using deceptive and unfair trade practices, including falsely portraying its Forex trading platform as a fair, transparent and true foreign currency exchange, when instead it is a “rigged game” designed to systematically separate customers from their money.

The Plaintiff, William H. Sanders, of Muscogee, Oklahoma, brought the action on behalf of himself and all other similarly situated FXCM customers, accusing FXCM of fraud by misrepresenting itself as a trading platform that is free from dealer intervention or manipulation. Instead, Sanders alleges, FXCM uses a number of devices and tricks, including software applications, designed specifically to interfere with customers’ trades.

The Complaint further alleges that FXCM engaged in a pattern of racketeering activity by collaborating with its software developers and programmers to develop a “diabolical” software application that provides FXCM with a myriad of tools and system commands with which to interfere with customers’ trades, including routing trades to “slow” servers and sending false “error” messages when customers attempt to close out profitable trades.

Finally, Sanders alleges in the Complaint that FXCM lured thousands of customers to its trading platform by promoting a “demo account” which was touted as providing customers with a true market trading experience. Instead, he claims, once “live” trading commences, FXCM deploys specially designed software to manipulate customers’ trades.

Lead Trial Counsel Tucker H. Byrd, of the Morgan & Morgan Business Trial Group of Orlando, Florida, stated, “We are proud to be representing Mr. Sanders in this action, which we believe will be an important step in bolstering accountability in an industry that has been largely unregulated since inception. We believe, as the Complaint alleges, that Forex Capital Markets, LLC has taken advantage of the trust placed in it by its customers, causing substantial financial harm to this group of people, and we are committed to working to recover those losses.”

FXCM is the nation’s largest Forex Dealer Merchant. The company recently went public and trades on the New York Stock Exchange.

globenewswire dot com/newsroom/news.html?d=213350

2

I’d say wait until any judgement is passed in the case before making up your mind. I’d be somewhat dubious about the claim that the software is systematically designed to separate customers from their money. The plaintiff sounds like a scalper disgruntled about slippage. But I guess we’ll see what happens in court.

3

I cannot comment on this, but a statement from FXCM can be found on our investor relations webpage.

-Jason

4

First of all, forex brokers are not angels. We all know that. I’m not especially fond of FXCM for no particular reason.

That having been said, from a quick read of the first post, this sounds like a bull**** lawsuit which will hopefully end up where such belong - in the trash.

5

Seems to me the best way to deal with brokers is to learn how they work and trade within those boundaries. If brokers are messing with scalping strategies, its time to find another strategy. I think that arbitrarily widening spreads is a pretty good sign of that. Brokers do want your business; but they have to protect themselves at the same time. Things don’t work to the way we think they should and especially not to our advantage. Think of casinos and blackjack. Once the casinos caught onto the advantage that card counters had, they changed the rules (multi-deck boots) and then they started banning suspected card counters from their premises. I don’t think that means there are no blackjack winners - they just have to use something other than card counting.

6

I wouldn’t be so quick to dismiss this - we’ve all heard of speculation of dealers doing this sort of thing. These are serious allegations, and if true, they should be punished to the fullest possible extent.

7

Looks like the public are not inclined to wait for innocent till proven guilty. FXCM stock getting heavily sold off! I personally wouldn’t trade with FXCM and this lawsuit is an example of why…

Current FXCM stock chart.
BigCharts - Interactive Charting

8

Hi TJ,

It’s disappointing to see any trader lose money and become frustrated with their trading results. FXCM feels our NDD forex execution gives traders a better deal whenever compared to the traditional dealing desk brokers, and the results will show.

Retail forex firms can see everything a trader does…if he/she is long/short a particular currency, where stops/limits are located, the customers trading history, how much margin the trader has available, etc. Dealing desk brokers can use this information to their advantage to increase the trading desks profitability.

FXCM doesn’t serve as a market maker in forex transactions. We eliminate the conflict of interest through No Dealing Desk (NDD) forex execution. (I have an NDD Q&A thread if you would like to read in more detail). FXCM has an anonymous trading venue where market makers cannot see who the traders are. The external market makers only see FXCM as a name on a trade. They never get client identities, nor client order information, and all resting orders (stops/limits) are triggered by FXCM and sent to the market makers as market orders, so they can’t look at the order book. By having multiple market makers competing to win business, it means no one market maker can control pricing and liquidity. They are incentivized to provide prices because if they skew their own pricing, they won’t win orders and their competitors will.

FXCM’s no dealing desk forex execution eliminates the conflict of interest present with a dealing desk broker. Every trade is executed back to back with one of multiple banks, and FXCM is compensated by a pip-markup (essentially a commission) added onto the spread. You can see step by step how FXCM’s execution in this walk-through video we put together. Learn How FXCM Executes Your Forex Trades

Jason

9

Absolutely.

I am however very curious as to what sort of basis this Sanders person has for his allegations. Also wondering if he missed reading their legal papers which, if they’re like most other brokers, clearly state that the broker may quote you whatever price he wants, may refrain from executing your order if he likes, etc.

If he does have a valid case then I wish him the best and hope he wins big.

10

[QUOTE=o990l6mh;243704]Absolutely.

I am however very curious as to what sort of basis this Sanders person has for his allegations. Also wondering if he missed reading their legal papers which, if they’re like most other brokers, clearly state that the broker may quote you whatever price he wants, may refrain from executing your order if he likes, etc.

If he does have a valid case then I wish him the best and hope he wins big.[/QUOTE]

To satisfy your curiosity and help the FXCM rep (who cannot talk about the case) I attached the complaint as it was filled in the district court.
Have fun reading it.

11

Thank you!

I did read it just now and that was some serious bull**** in that lawsuit imho.

The guy blows 150,000 USD from 2004-2008 and then of course he blames the broker for it.

Let me quote Mr. T: [I]I pity the fool![/I]

No substance whatsoever that I could find in that lawsuit.

Like I’ve said before, I’m not fond of FXCM myself and I certainly have no interest defending them or promoting them, but this just smells of ambulance chaser from a mile off.

12

Depends on the Intel and the supporting evidence put before the judge. Is not so hard to hit “print screen” and time stamps every error window that pops up.
The plaintiff must have done a lot of framing because he aims at too many targets for which he needs coverage not just fingers pointing.
However, I am not too worried about FXCM. They can afford it. One should learn how to trade and manage the risk first that’s for sure. If you at least have the latter in place a broker would have no incentive to target your account; but if you play Martingale with laverage instead of stop loss with Eur/CHF or a similar pair you’ll be an easy target…

13

It’s tough to lose $150k through slippage and requotes unless you’re absolutely massively over-leveraged. I don’t know how reliable the FXCM platform was between 2004 - 2008 but the fact that they expanded their customer base significantly over time means that it probably can’t be terrible. There’s a lot of competition in the marketplace and people vote with their feet if they’re not getting the service they want. Sounds to me like this guy is maybe fishing for an out of court settlement to try and get his cash back but I guess we’ll see how things pan out. 2004 was a long time ago in Forex and regulation was even sparser back then.

14

It’s worth noting that a very similar case has been filed against Gain (forex.com) by I believe the same law firm.

15

Well, reading between the lines in the lawsuit gives me a clear picture of a loser trader throwing mud around hoping it might stick.

Also, I’m no expert to say the least, but the language of the lawsuit seems pretty unprofessional to me. A lot of insinuations and accusations and guilt by association. For instance, the parts about how evil and insidious the demo is… just pathetic imho.

I’m going to guess that the one who should worry about being able to pay up is Mr Sanders as the losing part will have to pay the costs of the trial…

16

That sounds like a very good guess, same guess that I made.

17

What is more disappointing from a broker’s prospective is that FXCM missed the fact that it would have been cheaper to manage Sanders, than dealing with public relations damage control (on forums, television etc) and stock depreciation. It’s hard to NOT CATCH the angst of a customer who, after losing 150K (a lot for a non-institutional client) does not care for trial costs. On the other hand, if Senders was in fact compensated even with nominal amounts during these years, his standing in this trial would be seriously undermined because in this case he acknowledged and continued to compromise with an allegedly faulty platform. My masculine intuition tells me that this is not the case, (that is he was not compensated at all) and given the fact he has a reputable law firm behind it’s pretty safe to assume that FXCM customer service overlooked this one…or maybe FXCM business plan is so solid that they can afford it :slight_smile:

Enlighten us here Jason.

18

Hi crismln,

I cannot make any comments on the matter as mentioned before; however, you can view the statement on our website. The fact of the matter is that you have very few facts to base your assertion on.

Customer service is something FXCM prides itself on. We were one of the first brokers to offer 24/7 support and support by live chat online. We even took the step to be one of the first brokers to have a presence on forums helping clients who have questions about FXCM (and we are very thankful for BabyPips setting up the Broker Aid section which FXCM was the first broker to participate in).

Every issue that our clients approach us about is taken very seriously which is why we have a formal audit procedure, and FXCM is regulated in several jurisdictions which means our traders have an additional outlet for dispute resolution. In the world of trading where losses can be sustained, I understand not every trader will be happy with the outcome of their trading, but we will make sure that our traders are trading in a fair and transparent trading environment. That’s why we use NDD forex execution; whereas, some of our competitors do not. We obviously this is a better execution method, and we list the reasons why both in the videos we put together explaining how NDD forex execution works and our trading guide.

I know that everyone is anxiously waiting for more information, and that will come out in due time :). In the meantime, we will continue to offer the same quality in execution and customer support which over 174,000 tradeable accounts have access to with FXCM.

-Jason

19

Why would FXCM compensate with nominal amounts for what they see as a trader’s losses? And how would they decide which investors actually compensated? Where would they draw the line? If some investors received compensation and others didn’t there’d be an outcry. If you win, you win. If you lose, you lose. That’s the game. FXCM aren’t there too pat you on the head and toss you a bit of compensation money if things don’t work out for you.

Whether or not the alleged manipulation occurred is something which will be established by the court. Some brokers got done not too long ago for abusing slippage, etc. so it’s not out of the question but until the actual data is reviewed by the court anything said here is just guesswork. However from a read through the application lodged it reads heavy on the descriptive prose and allegations and pretty light on actual facts. They’ll need to come up with a lot more proof if they want to win this case.

Edit to add: One thing which FXCM (and other brokers) could do to head off events like this would be to have their customer service proactively reach out to traders who seem to be losing quite a bit of money and get some feedback from them, maybe offer them a free course or something to try and help them, etc.

20

Light is an understatement. :smiley: I didn’t find any actual facts at all in there.