December 2015 Newsletter


Scott+Scott Appointed Lead Counsel in FXCM Securities Litigation

Court Grants Final Settlement Approval in SinoHub Securities Litigation 

Scott+Scott Files Lawsuits on Behalf of Investors against Primary Dealers and HTFs for Manipulation of the U.S. Treasuries Market

Consumer Finance Protection Bureau Contemplates Ban on Class Action Waivers

Conferences and Educational Seminars



Scott+Scott Appointed Lead Counsel in FXCM Securities Litigation

On November 12, 2015, Judge Kimba M. Wood appointed the Policemen’s Annuity and Benefit Fund of Chicago (“PABF Chicago”) as lead plaintiff and Scott+Scott, Attorneys at Law, LLP (“Scott+Scott”), as lead counsel over the action International Union of Operating Engineers Local No. 478 Pension Fund v. FXCM Inc., Case No. 1:15-cv-03599-KMW (S.D.N.Y.).  The suit alleges that FXCM Inc. (“FXCM”), its Chief Executive Officer (“CEO”), and its Chief Financial Officer (“CFO”) failed to disclose the risks FXCM faced as a result of volatility in the forex markets, which were only made apparent when the dealer lost more than $200 million on Swiss franc trades after the Swiss National Bank’s shocking decision in January 2015 to no longer cap the Swiss franc against the euro.

FXCM provides online foreign exchange (“FX”) trading and related services to retail and institutional customers worldwide.  FXCM acts as an agent between retail customers and a collection of global banks and financial institutions by making foreign currency markets accessible for customers trading in foreign exchange spot markets.  FXCM provides its customers access to over-the-counter FX markets through its proprietary technology platform.

Scott+Scott, on behalf of an institutional investor, first filed suit in May 2015 on behalf of those who purchased FXCM stock between June 11, 2013 and January 20, 2015.  The suit alleges that FXCM touted its model of trading as being “extremely low-risk,” proclaimed that volatility in the forex markets was “uniformly good for the Company’s business,” and stated that it had adequate regulatory capital reserves to deal with “unforeseen scenarios.”

On January 15, 2015, the Swiss National Bank announced that it was ending a policy that capped the Swiss franc-euro exchange rate at 1.20 euro to the Swiss franc, and allowed the Swiss franc to trade freely against the euro.  As a result, the Swiss franc jumped as much as 41% against the euro, and FXCM announced that its customers had suffered cumulative losses of roughly $225 million.

Then on January 16, 2015, FXCM announced that it had been extended a $300 million loan by Leucadia National Corp. to stave off the regulatory default and possible bankruptcy facing FXCM.  The terms of the loan were described as “highly punitive” and wiped out nearly all shareholder value in FXCM.  Trading of FXCM’s stock was suspended and resumed on January 20, 2015.  That day, the stock price closed at $1.60, down from a close of $12.63 on January 15, 2015.  In all, FXCM stock dropped over 90% in three trading days.

In July 2015, six different groups filed motions seeking to be appointed lead plaintiff in the suit, four of which withdrew, leaving PABF Chicago and a group known as the Pension Fund Group, composed of two institutional investors.

As a result of FXCM’s actions, the PABF Chicago’s losses were approximately $1,100,229, whereas the Pension Fund Group’s losses were approximately $1,553,536.  Despite larger losses than PABF Chicago, Judge Wood said the Pension Fund Group could not aggregate its financial losses because the funds did not have a pre-existing relationship, did not provide an adequate cooperation plan, and did not show that their grouping was not “the product of lawyer-driven litigation.”  Accordingly, Judge Wood appointed PABF Chicago as lead plaintiff and selected Scott+Scott as lead counsel.

Judge Wood went on to write that “Scott+Scott has extensive experience in the area of securities litigation and class actions, and has obtained hundreds of millions of dollars for victims of corporate fraud” and that “[t]he Court finds that Scott+Scott has the requisite experience to serve as lead counsel, and thus will be able to effectively prosecute the action.”

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Court Grants Final Settlement Approval in SinoHub Securities Litigation 

Following a final approval hearing on November 13, 2015, the Honorable Judge William H. Pauley of the United States District Court for the Southern District of New York granted final approval of a settlement in In Re SinoHub Securities Litigation, No. 1:12-cv-08478-WHP (S.D.N.Y.).  The settlement negotiated by Scott-Scott concludes a three-year long litigation between a nationwide class of shareholders and a Chinese reverse merger company, SinoHub, Inc. (“SinoHub” or the “Company”), certain of the Company’s executives, and SinoHub’s auditor, Baker Tilly Hong Kong (“Baker Tilly”). 

The plaintiffs in this lawsuit are shareholders of SinoHub who purchased or otherwise acquired SinoHub common stock between May 17, 2010 and August 21, 2012.  Plaintiffs allege that the SinoHub executives violated sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as well as Rule 10b-5 enacted thereunder, when they caused the Company to make false and misleading statements in its SEC filings and press releases concerning the Company’s product sales, growth trajectory, product revenue, and adequacy of internal controls.  The plaintiffs also allege that Baker Tilly issued a clean audit opinion vouching for the accuracy of the Company’s financial statements, when in reality, the statements were false and misleading and prepared in violation of the U.S. Generally Accepted Accounting Principles.

The settlement provides for a payment of $600,000 in cash in exchange for the release of all claims against all Defendants.  According to the court-approved plan of allocation, authorized claimants will received a proportional amount of their damages, based on the timing of their transactions in SinoHub and the concomitant misstatements, as well as the Company’s corrective disclosures during the class period. 

Final approval comes after three-years of hard-fought litigation that commenced on November 20, 2012 and involved the retention of private investigators in the United States and China, protracted service attempts of a number of Chinese nationals under the Hague Convention, full briefing on three motions to dismiss, and briefing and oral argument on a motion to enforce settlement. 

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Scott+Scott Files Lawsuits on Behalf of Investors against Primary Dealers and HTFs for Manipulation of the U.S. Treasuries Market

On October 6 and October 16, 2015, Scott+Scott filed two similar class actions on behalf of Treasury securities investors against 22 financial institutions, who are primary dealers and a High Frequency Trading Firm (“HFT”) called 3Red Trading LLC (“3Red”), for their unlawful manipulation of the market of U.S. Treasuries.

U.S. Treasuries are U.S. Government-issued debt obligations, issued as bonds, notes, or bills, whose sale help finance the government.  The United States Treasury market is one of the largest in the world.  Serving as a benchmark for many other markets and interest rates, the U.S. Treasury market plays a critical and unique role in the global economy.

U.S. Treasuries are primarily issued through auctions conducted by the Federal Reserve Bank of New York on behalf of the U.S. Treasury.  The when-issued market for any U.S. Treasury begins when a Treasury auction is announced, and allows market participants to trade in the Treasury securities that are to be auctioned.  The already-issued treasuries are traded mostly in the OTC market, and there is also a market for Treasury futures contracts, the trading of which is limited to the exchanges.

Most of the Defendants serve as primary dealers in the Treasuries market and are major participants in Treasury auctions.  As primary dealers, Defendants bid directly in the U.S. Treasury auction, both on behalf of themselves and their indirect bidder customers.  Because of their position as direct submitters of bids, Defendants have access to information provided to them by their customers for their indirect bids, including the price and volume of bids that will be placed in the auction.  From at least as early as January 1, 2007 through June 8, 2015, the Primary Dealer Defendants  utilized and shared their customers’ non-public indirect bidding information and  targeted auctions of Treasury bonds and notes, characterized by relatively high or low levels of indirect bids.  The Primary Dealer Defendants colluded in the execution of certain trading strategies to exploit U.S. Treasuries markets, including auctions and the when-issued and OTC markets, as well as CME treasury futures contracts, to maximize their profits to the detriment of plaintiffs and the class members.  In addition to sharing customers’ non-public indirect bidding orders with other Primary Dealer Defendants, the Primary Dealer Defendants also unlawfully manipulated the U.S. Treasuries market by colluding with HFTs, such as 3Red, through their coordinated use of an illegal market strategy known as “spoofing” the market, which is entering orders with the intention of cancelling them before they were executed. 

In the lawsuits filed by Scott+Scott in the U.S. District Court for Northern District of California, the plaintiffs alleged that Defendants’ manipulation of the U.S. Treasuries market violated Section 1 of the Sherman Antitrust Act, 15 U.S.C. §1, the Commodity Exchange Act, and also asserted a state law claim for unjust enrichment.

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Consumer Finance Protection Bureau Contemplates Ban on Class Action Waivers

In late October of this year, the Consumer Finance Protection Bureau (“CFPB”) announced that it is considering important new rules that, if adopted, would prohibit class action waivers that are often contained in “arbitration agreements” utilized by companies to govern dispute resolution with their consumers.  The announcement by the CFPB is significant, as the proposed new rulemaking would outlaw the growing number of class action waivers that are so often forced upon consumers who utilize a particular good or service in the financial products market. 

The CFPB is an agency that is authorized under the Dodd-Frank Act to ensure that the rules in consumer finance markets are fair and consistent.  Under that mandate, the CFPB is currently taking aim at eliminating class action waivers contained within arbitration agreements in financial service contracts.  At present, consumers who sign up for financial product services like credit cards, prepaid cards, checking and deposit accounts, money transfer services, certain automobile loans, private student loans, small-dollar loans, payday loans, or even installment loans are required to sign a contract that specifies the terms of the agreement between the customer and the service provider.

Typically, these service contracts are lengthy and contain a great deal of boilerplate language that average consumers do not take the time to fully comprehend.  Increasingly, these financial product service agreements contain a section with an arbitration agreement specifying that in the event of a disagreement over the contracted services, the consumer’s legal remedies against the service provider are limited solely to arbitration and that the consumer has no right to pursue legal action as part of a class of other injured consumers.

Arbitration clauses that prohibit class action remedies for consumers have long been criticized as self-serving for the institutions that impose them on consumers.  Critics argue that the financial institutions are deliberately steering aggrieved consumers to a dispute resolution forum that favors the institutions and limits the remedies of the consumer, who, but for the arbitration agreement, would be able to seek more effective redress in a class-wide setting.

The CFPB recently studied the issue and concluded in its final report that consumers are far better served by litigation, and in particular, class action litigation, than by arbitration agreements contained in consumer financial contracts.  Indeed, the CFPB concluded that when comparing individual arbitration to class action litigation, the class action was the superior mechanism to obtain relief for consumers when considering factors such as forms of relief, timing of the payment of settlements, the time involved from claim to settlement, and the cost involved in obtaining relief.

The CFPB is therefore proposing a new set of rules that will govern consumer financial contracts, prohibiting financial institutions from forcing consumers to forfeit their right to join a class action.  Under these contemplated rules, companies that still wish to utilize mandatory arbitration clauses in their service contracts may still continue to do so.  However, the new contracts must specify that the arbitration does not also prohibit representative class actions.

Likewise, the CFPB is contemplating new rules that would require companies that continue to utilize arbitration clauses to submit any arbitration claims and subsequent awards or relief to the CFPB in an attempt to increase transparency behind the arbitration process and deter unjust arbitration results.  The ultimate goal of the CFPB is to promote fairness for consumers, particularly with regard to service contracts in the financial services industry where wronged consumers are already at a perceived disadvantage in bargaining power relative to the large institutions they are transacting with.

While any proposed rule changes will not take effect until late next year or even 2017, consumer attorneys and consumer watch groups are already hailing the effort as a success.  In the meantime, the CFPB is gathering feedback on its proposed rule changes and may still consider even more proactive steps to provide consumers with the broadest means available when it comes to seeking redress for disputes in in the financial products market. 

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December Events


Conferences and Educational Seminars


+December 6-8, 2015


Global Indexing & ETFs (Super Bowl of Indexing) Conference 

Hyatt Regency at Gainey Ranch

Scottsdale, AZ


Information Management Network (IMN) will produce its 20th annual investment management conference; the Global Indexing and ETFs conference formerly known as the Super Bowl of Indexing.  This year’s focus will be combining education filled with cutting edge content as presented by senior executive partners with networking opportunities.  The conference is well known for its keynote speakers, who have included Henry Kissinger, Madeleine Albright, Bill Bradley, Harvey Pitt, Robert Shiller, Christina Romer and Harry Markowitz among other Nobel Laureates.  Investment Management Network has developed long-term relationships with many of the largest and most influential investors around the globe.


+December 9-11, 2015

Alternative Investing Summit and CLO Summit produced by Opal Financial Group

Ritz-Carlton, Laguna Niguel

Dana Point, CA

Opal Financial Group is an organization offering peer networking and educational conferences in numerous continents.  This year, the Alternative Investing Summit will run in conjunction with the CLO Summit which will provide additional opportunities for participants.  Opal Financial group works closely with small and mid-sized plans, as well as with national, state and local industry associations and trade groups that represent the institutional investor community.  Hundreds of pension professionals from around the country  will come together to discuss the most pressing issues affecting funds  including  fiduciary responsibility, plan funding and maximizing investments. This year’s opening session’s topic will be  Securities Fraud and White Collar Crime.


+December 16-17. 2015


CORPaTH International Pension Alliance

Caesars Palace

Las Vegas, Nevada


“CORPaTH is an alliance of trustees, consultants, asset managers, administrators, elected officials and other professionals who oversee pension assets and Guaranteed Lifetime Income Accounts (GLIA) for the benefit of working men and women who earn and deserve a secure retirement.” CORPaTH is an advocate for its members on issues critical to the current and future health of pension funds. CORPaTH’s mission is to protect and expand defined benefit pension plans and insist on high quality corporate governance and responsible  investment strategies focusing on economic sustainability, financial market accountability and common sense regulation. This year’s attendees include Sir Paul Kenny of the GMB (Great Britain’s General Union) and Fiona Reynolds of UN PRI.


Government Finance Officers’ Association Conferences


+December 3-4, 2015

           Wisconsin Government Finance Officers’ (WGFOA) Winter Conference

Best Western Premier Waterfront

Oshkosh, Wisconsin



          +December 9-11, 2015

           North Carolina Local Government Budget (NCLGBA) Winter Conference

           Renaissance Asheville Hotel

           Asheville, North Carolina



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Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firm represents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: + UK Tel: 0808.234.1396