Cypriot Forex & CFD broker, easy-forex may soon be on the receiving end of a $130 million dollar class action lawsuit according the Israeli financial newspaper, Globes. If this is the case it would be one of the largest lawsuits every faced by a retail Foreign exchange brokerage.

On the 19th of August 2014, a Tel Aviv district court ruled that there was a ‘probable chance’ that easy-forex one of the larger brokerages operating in the territory, had been operating as an investment advisory and investment marketing firm. It is alleged that the firm may have taken actions which would qualify as investment manager, via subsidiary firm name Forex Center which would make the company subject to Israeli Investment Management Law.

This decision was made in a case undertaken by five Israeli clients of the brokerage, who were requesting the courts approval in preceding in a class action lawsuit against the firm. In the original complaint the complainants have admitted the difficulties in assessing the worth of the lawsuit, but according to the Israeli paper they lawsuit may worth around 500 million shekels, which is equivalent to roughly $137 million dollars.

The complainants, claim that clients of the brokerage lost million of Shekels in only a short period of time. The lawsuit calls FX trading a fraud and alleges that easy-forex benefited from client losses. The brokerage had asked the court to reject the lawsuit made by the five complainants stating the suit was “demagoguery, full of meaningless populist statements and based on baseless factual and legal assumptions.” The brokerage further went onto to say that the brokerage makes it clear that it is a market maker and lacks the ability or will to make it’s clients lose. It should be noted that on ocassion a market makers profits can equal the losses of the firms clients, depending on the hedging and risk management used by the firm.

At the centre of the lawsuit is the claim that easy-forex offered investment advice and management, which would mean the firm would have been subject to Israeli financial services regulation. Prior to August 2014, it was possible for Forex and CFD brokerages to operate within the country without being regulated.

The case centres around whether the brokerage offered investment advice to clients and whether it engaged in portfolio management services. According to the district judge there is probable evidence that easy-forex did in-fact offer investment advice with the judge stating that “First, it was proven that Easy Forex used to send some of its clients emails with investment recommendations referring to specific currency pairs. Observing the document reveals it includes specific investment recommendations for three currency pairs, for each pair it was stated what position to take (short or long), at what rate and what the target rate is; as well as alternative scenarios. The content of this document is investment advice in a most blunt and obvious way.”

Further statements made by the complainants, suggest that those working in the easy-forex trading room provided them with market estimations, future data forecasts and recommendations for specific deals. Though the judge stated that from the current evidence it was not possible to determine the number of clients given advice and the level of advice given to those clients. With the judge stating “At this preliminary stage I tend to determine that the plaintiffs have stood up to the burden of providing an infrastructure of evidence to allegedly support this claim that Easy Forex was involved in investment marketing.”

This not the first time that easy-forex has come under regulatory and legal scrutiny. In 2010, the brokerage was a defendant in a similar lawsuit with a number of clients stating that they had lost several hundred thousand dollars. In 2011, the brokerage was subject to an Israeli criminal investigation as a result of the 2010 court case, with it also being alleged by some in the Israeli media that the brokerage had settled a number of cases out of court. The brokerage has also been fined by Cyproit financial services regulator CySEC in both 2009 and 2010. It will be interesting to see how this case develops.

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