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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
PLAINTIFF, Individually and on Behalf of All Others Similarly Situated,
Plaintiff, v.
FXCM INC., DROR NIV, DAVID SAKHAI, WILLIAM AHDOUT, KENNETH
GROSSMAN, EDUARD YUSUPOV, ROBERT LANDE, CREDIT SUISSE SECURITIES (USA) LLC, J.P. MORGAN SECURITIES LLC, CITIGROUP GLOBAL MARKETS INC., DEUTSCHE BANK SECURITIES INC., BARCLAYS CAPITAL INC., SANDLER O’NEILL & PARTNERS, L.P., and UBS SECURITIES LLC,
Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) No. DRAFT
CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
DEMAND FOR JURY TRIAL
Plaintiff, by and through his attorneys, alleges the following upon information and belief, except as to those allegations concerning Plaintiff, which are alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other things, his counsel=s investigation, which includes without limitation: (a) review and analysis of regulatory filings made by FXCM Inc. (AFXCM@ or the ACompany@) with the United States Securities and Exchange Commission (ASEC@); (b) review and analysis of press releases and media reports issued by and disseminated by FXCM; and (c) review of other publicly available information concerning FXCM.
SUMMARY
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acquired the common stock of FXCM pursuant and/or traceable to the Company’s false and/or misleading Registration Statement and Prospectus (collectively, the “Registration Statement”) issued in connection with the Company’s December 1, 2010, initial public offering (the “IPO” or the “Offering”), seeking to pursue remedies under the Securities Act of 1933 (the “Securities Act”). 2. FXCM is an online provider of foreign exchange, or forex, trading and related services to approximately 175,000 retail and institutional customers globally.
3. On February 15, 2011, the Company reported disappointing key operating metrics for January 2011 for its retail foreign exchange business, including that the amount of tradeable accounts, which are FXCM retail costumers’ accounts with sufficient funds to place a trade, had decreased 1,250 or 1% from December 2010 and that retail customer trading volume was $258 billion, which was substantially less than analysts’ estimates. These results led Citigroup analyst William Katz to downgrade FXCM stock because these results that were significantly below expectations “calls into question our 2011-12 . . . growth assumptions and begin to suggest greater [industry] maturity than previously contemplated.”
4. The following day, shares of the Company’s stock declined $1.65 per share, or 12.04%, to close at $12.05 per share on February 16, 2011. This closing price on FXCM represented a cumulative loss of $1.85, or more than 13%, of the value of the Company’s shares at the IPO price of $14.00 per share, just months earlier.
5. The Registration Statement was materially false and misleading and/or omitted to state the following: (1) that there was not a reasonable basis for the Company’s assessment of its future prospects and operations; and (2) that the Company’s trading volume and the amount of trading accounts were falling short of forecasts because the Company had overstated its own growth
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JURISDICTION AND VENUE
6. The claims asserted herein arise under and pursuant to Sections 11 and 15 of the Securities Act (15 U.S.C. §§ 77k and 77o).
7. This Court has jurisdiction over the subject matter of this action pursuant to Section 22 of the Securities Act (15 U.S.C. § 77v).
8. Venue is proper in this Judicial District pursuant to Section 22 of the Securities Act. Many of the acts and transactions alleged herein, including the preparation and dissemination of materially false and/or misleading information, occurred in substantial part in this Judicial District. Additionally, FXCM’s principal executive offices are located within this Judicial District.
9. In connection with the acts alleged in this Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including but not limited to, the United States mails, interstate telephone communications and the facilities of the national securities exchange.
PARTIES
10. Plaintiff, as set forth in the accompanying certification, incorporated by reference herein, purchased FXCM securities pursuant and/or traceable to the Registration Statement issued in connection with the Company’s IPO and has been damaged thereby.
11. Defendant FXCM is a Delaware corporation with its principal executive offices located at 32 Old Slip, New York, NY 10005.
12. Defendant Dror Niv (ANiv@) was, at all relevant times, President and Chief Executive Officer (“CEO”) of FXCM and signed or authorized the signing of the Company’s Registration
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13. Defendant David Sakhai (ASakhai@) was, at all relevant times, Chief Operating Officer, and a Director of FXCM and signed or authorized the signing of the Company’s Registration Statement filed with the SEC.
14. Defendant William Ahdout (“Ahdout”) was, at all relevant times, a Director of FXCM and signed or authorized the signing of the Company’s Registration Statement filed with the SEC.
15. Defendant Kenneth Grossman (“Grossman”) was, at all relevant times, a Director of FXCM and signed or authorized the signing of the Company’s Registration Statement filed with the SEC.
16. Defendant Eduard Yusupov (“Yusupov”) was, at all relevant times, a Director of FXCM and signed or authorized the signing of the Company’s Registration Statement filed with the SEC.
17. Defendant Robert Lande (“Lande”) was, at all relevant times, a Director and Chief Financial Officer (“CFO”) of FXCM and signed or authorized the signing of the Company’s Registration Statement filed with the SEC.
18. Defendants Niv, Sakhai, Ahdout, Grossman, Yusupov, and Lande, are collectively referred to hereinafter as the “Individual Defendants.”
19. Defendant Credit Suisse Securities (USA) LLC (“Credit Suisse”) is global, full-service investment banking firm and served as an underwriter to FXCM in connection with the Offering.
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that is involved in investment banking, securities dealing and brokerage services, and served as an underwriter to FXCM in connection with the Offering.
21. Defendant Citigroup Global Markets Inc. (“Citigroup”) is a global, full-service investment banking and securities firm and served as an underwriter to FXCM in connection with the Offering.
22. Defendant Deutsche Bank Securities Inc. (“Deutsche”) is the investment banking arm of Deustche Bank Group and served as an underwriter to FXCM in connection with the Offering. 23. Defendant Barclays Capital Inc. (“Barclays”) is the investment banking division of Barclays Bank PLC and served as an underwriter to FXCM in connection with the Offering.
24. Defendant Sandler O'Neill & Partners, L.P. (“Sandler”) is a global banking firm that provides investment banking services and served as an underwriter to FXCM in connection with the Offering.
25. Defendant UBS Securities LLC (“UBS”) is the investment banking division of UBS AG and served as an underwriter to FXCM in connection with the Offering.
26. Defendants Credit Suisse, J.P. Morgan, Citigroup, Deutsche, Barclays, Sandler, and UBS are collectively referred to hereinafter as the “Underwriter Defendants.” The Underwriter Defendants received an underwriting discount of over $13.7 million on FXCM shares for their participation in the IPO.
CLASS ACTION ALLEGATIONS
27. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or otherwise acquired FXCM securities pursuant and/or traceable to the Registration Statement issued in
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connection with the Company’s December 1, 2010 IPO, and who were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and directors of the Company, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.
28. The members of the Class are so numerous that joinder of all members is impracticable. During the relevant period, FXCM= securities were actively traded on the New York Stock Exchange ("NYSE"). While the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by FXCM or, its transfer agent and may be notified of the pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions.
29. Plaintiff’s claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by Defendants= wrongful conduct in violation of federal law that is complained of herein.
30. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation.
31. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are:
(a) whether the Securities Act was violated by Defendants= acts as alleged herein; (b) whether statements made by Defendants to the investing public in connection
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with the Company’s IPO omitted and/or misrepresented material facts about the business, operations, and prospects of FXCM; and
(c) to what extent the members of the Class have sustained damages and the proper measure of damages.
32. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action.
BACKGROUND
33. FXCM is an online provider of foreign exchange, or forex, trading and related services to approximately 175,000 retail and institutional customers globally.
FXCM’S FALSE AND DEFECTIVE REGISTRATION STATEMENT AND PROSPECTUS
34. On or about December 1, 2010, FXCM filed with the SEC a Form S-1/A for the IPO (the “IPO Registration Statement”).
35. On December 1, 2010, the Company issued a press release entitled, “FXCM Announces Pricing of its Initial Public Offering.” Therein, the Company, in relevant part, stated:
NEW YORK, Dec 01, 2010 (BUSINESS WIRE) --
FXCM Inc. announced today that its initial public offering of 15,060,000 shares of its Class A common stock has been priced at $14.00 per share. The shares are expected to begin trading tomorrow, December 2, 2010, on the New York Stock Exchange under the ticker symbol "FXCM." The underwriters have been granted a 30-day option to purchase up to 2,259,000 additional shares of Class A common stock at the public offering price less the underwriting discount from FXCM if the underwriters sell more than 15,060,000 shares in the offering.
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Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Citigroup Global Markets Inc. are acting as joint book-running managers of the offering. Barclays Capital Inc., Deutsche Bank Securities Inc., Sandler O'Neill & Partners, L.P. and UBS Securities LLC are acting as co-managers. The offering will be made only by means of a prospectus. Copies of the final prospectus, when available, may be obtained by contacting Credit Suisse Securities (USA) LLC, Attention: Credit Suisse Prospectus Department, One Madison Avenue, New York, NY 10010, or by calling: 800-221-1037, J.P. Morgan Securities LLC, c/o Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717, Attention: Prospectus Department, or by calling: 866-803-9204 and Citigroup Global Markets Inc., Brooklyn Army Terminal, 140 58th Street, 8th Floor, Brooklyn, NY 11220, or by calling: 800-831-9146, or by e-mailing: batprospectusdept@citi.com. The final prospectus, when it is available, also may be obtained on the Securities and Exchange Commission's Web site at http://www.sec.gov.
36. On or around December 3, 2010, filed with the SEC its Prospectus (the “IPO Prospectus”), which forms part of the IPO Registration Statement that was declared effective on December 1, 2010, and at least 15 million shares of FXCM common stock were sold to the public at $14.00 per share, raising net proceeds in excess of $197 million for the Company.
37. The IPO Registration Statement and IPO Prospectus were negligently prepared and, as a result, contained untrue statements of material facts or omitted to state other facts necessary to make the statements made not misleading and were not prepared in accordance with the rules and regulations governing their preparation.
38. Under applicable SEC rules and regulations, the Registration Statement was required to disclose known trends, events or uncertainties that were having, and were reasonably likely to have, an impact on the Company’s continuing operations.
39. The IPO Registration Statement and IPO Prospectus represented that the foreign exchange market would continue to grow at high rates and made the following representation:
We believe that retail FX trading will continue to grow at high rates as retail investors seek new asset choices, become more knowledgeable about FX markets through frequent media coverage of global economic issues and recognize the
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advantages of online FX trading over online trading of other assets, such as equities. We also believe that retail FX investors globally are becoming more sophisticated and demanding more transparency, better execution and better customer service. We believe our agency model, scale, proprietary technology platform, network of FX market makers and customer service will continue to attract a diverse and experienced base of customers, who use a wide range of trading strategies, trade more frequently and generally maintain long term relationships with our firm.
Our opportunities
Continued growth of the retail FX market
Despite the strong growth of the retail FX market, online retail FX investors still represent a small fraction of the total population of online investors. According to internal estimates by the Aite Group, as of July 2010, there were over 100 million retail equity traders globally, but only 1.25 million retail FX traders. Overall awareness of FX continues to grow among investors, driven in part by increased media coverage and the central role FX plays in the global economy. Also, since retail FX is an asset class that can be traded 24 hours per day, five days a week, it is convenient to trade for many online investors as they can trade at any time of the day. Unlike equities, fixed income, real estate and many other asset classes, FX markets do not experience periods where all assets move in one direction or another. As a result, the FX market is not necessarily correlated to other assets popular with online investors, such as equities or options, and we believe that, as an increasing number of investors realize this, retail FX will attract more attention as a way to increase portfolio diversification.
(Emphasis added).
40. The Registration Statement was materially false and misleading and/or omitted to state the following: (1) that there was not a reasonable basis for the Company’s assessment of its future prospects and operations; and (2) that the Company’s trading volume and the amount of trading accounts were falling short of forecasts because the Company had overstated its own growth prospects and that of the forex market.
41. On February 15, 2011, the Company issued a press release entitled, “FXCM Reports Monthly Metrics.” Therein, the Company, in relevant part, stated:
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NEW YORK, Feb 15, 2011 (BUSINESS WIRE) --
FXCM Inc. (NYSE: FXCM) today announced certain key operating metrics for January 2011 for its retail foreign exchange business. Monthly activities included: January 2011
• Retail customer trading volume(1) of $258 billion in January 2011, 8% higher than December 2010(2) and 5% higher than January 2010.
• An average of 307,689 retail client trades per day in January 2011, 11% higherthan December 2010(2) and 7% lower than January 2010.
• Tradeable accounts(3) of 173,990 as of January 31, 2011, a decrease of 1,250 or 1% from December 2010(2), and an increase of 30,343 or 21% from January, 2010. As part of regular account maintenance, FXCM notified clients in January 2011 that it would charge a fee for accounts that had not placed a trade in over 12 months. The inactive fee will be assessed in February 2011. As a result, 3,221 previously inactive accounts closed in January. Excluding these closures, tradeable accounts would have increased by 1,971 or 1%.
* * *
(1)
Volume that FXCM retail customers traded in period translated into US dollars.
(2)
FXCM revised December 2010 customer trading volume to $239 billion, average retail client trades per day to 277,665, and tradeable accounts to 175,240.December 2010 tradeable accounts include a decrease of 5,432 accounts that no longer meet the definition of a tradeable account due to recent changes in CFTC minimum margin requirements.
(3)
An FXCM retail customer account with sufficient funds to place a trade. (Emphasis added).
42. On this news, shares of the Company’s stock declined $1.65 per share, or 12.04%, to close at $12.05 per share on February 16, 2011. This closing price on FXCM represented a cumulative loss of $1.85, or more than 13%, of the value of the Company’s shares at the IPO price of $14.00 per share, just months earlier.
FIRST CLAIM Violation of Section 11 of
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43. Plaintiff repeats and realleges each and every allegation contained above, except any allegation of fraud, recklessness or intentional misconduct.
44. This Count is brought pursuant to Section 11 of the Securities Act, 15 U.S.C. §77k, on behalf of the Class, against all defendants.
45. The Registration Statement for the IPO was inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein.
46. FXCM is the registrant for the IPO. The defendants named herein were responsible for the contents and dissemination of the Registration Statement.
47. As issuer of the shares, FXCM is strictly liable to plaintiff and the Class for the misstatements and omissions.
48. None of the defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement were true and without omissions of any material facts and were not misleading.
49. By reasons of the conduct herein alleged, each defendant violated, and/or controlled a person who violated Section 11 of the Securities Act.
50. Plaintiff acquired FXCM shares pursuant and/or traceable to the Registration Statement for the IPO.
51. Plaintiff and the Class have sustained damages. The value of FXCM common stock has declined substantially subsequent to and due to defendants' violations.
SECOND CLAIM Violation of Section 15 of
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52. Plaintiff repeats and realleges each and every allegation contained above, except any allegation of fraud, recklessness or intentional misconduct.
53. This count is asserted against the Individual Defendants and is based upon Section 15 of the Securities Act.
54. Individual Defendants, by virtue of their offices, directorship and specific acts were, at the time of the wrongs alleged herein and as set forth herein, controlling persons of FXCM within the meaning of Section 15 of the Securities Act. The Individual Defendants had the power and influence and exercised the same to cause FXCM to engage in the acts described herein.
55. Individual Defendants’ position made them privy to and provided them with actual knowledge of the material facts concealed from Plaintiff and the Class.
56. By virtue of the conduct alleged herein, the Individual Defendants are liable for the aforesaid wrongful conduct and are liable to Plaintiff and the Class for damages suffered.
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper class action under Rule 23 of the Federal Rules of Civil Procedure;
(b) Awarding compensatory damages in favor of Plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees;
(d) Awarding rescission or a rescissory measure of damages; and (e) Such other and further relief as the Court may deem just and proper.
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JURY TRIAL DEMANDED Plaintiff hereby demands a trial by jury.
Dated: February 18, 2011 GLANCY BINKOW & GOLDBERG LLP _____DRAFT________
Lionel Z. Glancy Michael Goldberg
1801 Avenue of the Stars, Suite 311 Los Angeles, California 90067 Telephone: (310) 201-9150 Facsimile: (310) 201-9160
LAW OFFICES OF HOWARD G. SMITH Howard G. Smith
3070 Bristol Pike, Suite 112 Bensalem, PA 19020
Telephone: (215) 638-4847 Facsimile: (215) 638-4867 Attorneys for Plaintiff
