364 F. Supp. 3d 227
S.D. Ill.2019Background
- FXCM marketed a "No Dealing Desk" (NDD) forex platform as conflict-free and anonymizing customer orders, promising standardized markups rather than taking positions opposite customers.
- FXCM hired high-frequency trader John Dittami to build an algorithmic system; that business spun off as Effex, which paid FXCM monthly "rebate" payments for order flow and captured a large share of FXCM's volume.
- Plaintiffs allege Effex (and Dittami) received preferential treatment (tie wins, shared quotes, smaller markups), used features like a "Hold Timer" and "Previous Quote" to obtain a "last look," and executed/rejected trades to FXCM/Effex's advantage.
- In February 2017 FXCM settled with the CFTC and NFA, which found FXCM concealed its relationship with its primary market maker; those orders did not adjudicate Effex or Dittami's culpability and expressly limited use in other proceedings.
- Plaintiffs brought a consolidated securities class action asserting federal (CEA aiding/abetting and principal/agent) and state-law claims against Effex and Dittami (six counts remained against them after arbitration stayed other defendants).
- The Court denied defendants' motion to strike references to the regulator settlements but dismissed all claims against Effex and Dittami without prejudice for failure to plead with particularity and failure to state plausible damages-based claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether references to CFTC/NFA settlements must be struck | Plaintiffs rely on settlements as factual support and plead some allegations on information and belief | Effex/Dittami argued settlements are inadmissible, prejudicial, and not binding on them | Denied — settlements may remain in pleadings at pleading stage as allegations on information and belief because they bear on the issues |
| Whether fraud-based claims meet Rule 9(b) particularity against Effex/Dittami | Allegations (largely derived from regulator orders) suffice to show deceptive practices and aiding/abetting | Plaintiffs' allegations about Effex/Dittami are plead only on information and belief and lack particularized facts within plaintiffs' possession | Dismissed for failure to meet Rule 9(b); allegations against Effex/Dittami lack independent factual support |
| Whether plaintiffs alleged "actual damages" required for private CEA claims | Plaintiffs contend concealment and inferior executions caused losses and seek recovery | Defendants argue plaintiffs plead only speculative, generalized injury and do not identify specific transactions or quantifiable losses attributable to Effex/Dittami | Dismissed — plaintiffs failed to plead actual damages with particularity, so CEA aiding/abetting and related claims fail |
| Whether state-law claims (NY GBL §349, Cal UCL, unjust enrichment, aiding/abetting fiduciary breach) survive | Plaintiffs assert consumer-protection and restitution claims based on the same deceptive practices | Defendants argue claims are not consumer-oriented (NY), lack California contacts/standing, lack nexus to plaintiffs (unjust enrichment), and lack pleaded damages | Dismissed — NY §349 not consumer-oriented here; UCL and other state claims fail for lack of injury, standing, or requisite nexus; unjust enrichment and aiding/abetting fiduciary claims dismissed for lack of factual nexus and damages |
Key Cases Cited
- In re Fannie Mae 2008 Sec. Litig., 891 F. Supp. 2d 458 (S.D.N.Y. 2012) (standards for Rule 12(f) motion to strike and presumption against striking pleadings)
- Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160 (2d Cir. 2015) (limitations on use of government orders at pleading stage and use of "information and belief")
- Lipsky v. Commonwealth United Corp., 551 F.2d 887 (2d Cir. 1976) (circumstances where striking portions of a complaint may be appropriate)
- Arbaugh v. Y & H Corp., 546 U.S. 500 (U.S. 2006) (subject-matter jurisdiction cannot be waived)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (Twombly pleading standard)