FXCM to Withdraw From U.S. After Probe, Sell Client Accounts

  • Gain Capital signs letter of intent to purchase U.S. accounts
  • Deal follows regulatory investigation that barred a subsidiary

FXCM Inc., the currency-trading firm bailed out by Leucadia National Corp., plans to withdraw from the U.S. and sell its accounts there to Gain Capital Holdings after a subsidiary and two founders were punished for misleading customers.

The move will free up about $52 million in capital and help pay down debt to Leucadia, FXCM said Monday in a statement. Customer accounts outside the U.S. aren’t affected, it said. The deal -- outlined in a non-binding letter of intent with Gain -- follows settlements with U.S. regulators that barred the company’s Forex Capital Markets subsidiary from key businesses.

Forex Capital Markets and co-founders Dror “Drew” Niv and William Ahdout agreed Monday to withdraw their registration with the Commodity Futures Trading Commission. The agency said it jointly fined them and a related entity $7 million after concluding they misled retail traders who bought and sold currencies on the unit’s “No Dealing Desk” from September 2009 through 2014.

The firm promised users it served as an intermediary, had no conflict of interest, and didn’t stand to profit if they lost money, according to the agency. In reality, the company had an undisclosed interest in a market maker that consistently handled the largest share of the trades, taking positions opposite FXCM’s retail customers, the CFTC said.

Franc Losses

FXCM Inc. was the largest U.S. retail foreign-exchange broker when it lost more than $200 million after the Swiss central bank’s decision in January 2015 to let the franc trade freely against the euro. A $300 million bailout from Leucadia, owner of investment bank Jefferies Group, saved FXCM from violating capital requirements.

The subsidiary, Niv and Ahdout didn’t admit or deny wrongdoing in settling with the CFTC. Ahdout didn’t immediately respond to a message seeking comment. Niv couldn’t immediately be reached.

Separately, the National Futures Association said in a statement it barred the Forex Capital Markets unit from membership after the unit and the two executives “engaged in numerous deceptive and abusive execution activities.” Niv’s sister, Ornit, who led the unit, also agreed to withdraw from membership.

Repaying Leucadia

Pulling back from its beleaguered U.S. operations helps FXCM cut its debt to Leucadia and then continue earning money abroad to eventually repay the loan, which is due in January of 2018. It still owed roughly $155 million as of November, according to a regulatory filing at the time. The moves and settlements announced Monday don’t trigger a default, according to a person with knowledge of the matter, who asked not to be identified discussing the terms. The maturity date already was extended, giving FXCM another year.

Leucadia has written down the value of the loan and associated investments -- including a stake in the company -- over the years. It valued the assets at $541.9 million as of Sept. 30, down from $947 million in March 2015.

Last year, FXCM’s U.S. business generated about $48 million in net revenue, according to its statement. Globally, the company took in more than $250 million in net revenue, including adjustments, in the 12 months through September, according to data compiled by Bloomberg.

FXCM said it’s working with Gain to figure out the timing for transferring accounts. It didn’t specify how many are affected. As of July, the Forex Capital Markets unit had more than 20,000 accounts with a total of more than $170 million in liabilities, according to the CFTC’s order.

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