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Global Brokerage faces $300 million “Black Swan” question

Chicago Policemen Fund estimate the value of its claim at more than $300 million, whereas the broker’s bankruptcy plan appears to be putting it at $0.00.

About a month after Global Brokerage Inc (OTCMKTS:GLBR), formerly known as FXCM Inc, filed its petition for Chapter 11 bankruptcy, the questions around the plan suggested by the company continue to pile up, with one of these questions concerning a claim whose value is put at excess of $300 million.

Earlier this week, the Retirement Board of the Policemen’s Annuity and Benefit Fund of Chicago on Behalf of the Policemen’s Annuity and Benefit Fund of Chicago (the “Fund”), which is a lead plaintiff in a class action lawsuit against the broker related to the events from January 15, 2015, and a creditor to Global Brokerage, filed its objection to Global Brokerage’s Disclosure Statement and Plan of Reorganization.

The case, captioned International Union of Operating Engineers Local No. 478 Pension Fund v. FXCM Inc. et al (1:15-cv-03599), is pending in the New York Southern District Court. The case targets Global Brokerage and Dror Niv, the Debtor’s chief executive officer in the relevant time period. The Fund Class Action is a securities fraud class action brought on behalf of a putative class of all purchasers of the Debtor’s common stock between March 17, 2014 and January 20, 2015, inclusive. The Fund’s complaint alleges that the defendants made fraudulent statements and omissions about the Debtor’s true business risks and once the risks materialized they caused massive losses to the Debtor as well as to the Fund and members of the class.

According to the complaint, Defendants’ narrative about FXCM being the innocent victim of a “Black Swan” event is just a fiction designed to cover-up fraudulent misconduct.

In its latest court filing, the Fund argues that Global Brokerage’s Disclosure Statement discusses volatility in the EUR/CHF currency pair three years ago as a source of losses, while being silent as to the role of management itself in the Debtor’s loss of liquidity in the three years preceding the bankruptcy petition date.

“The silence is curious particularly because it appears that the Debtor’s pre-petition management has or will be departing as part of the Debtor’s reorganization”, the Fund says.

The Fund seeks damages in an amount to be determined at trial. Thus, the Fund is a creditor of the Debtor, having a Claim that is Disputed and unliquidated. The Fund estimates that the amount of its Allowed Claim will be in excess of $300 million. In accordance with the Plan, the Fund has not filed and will not file a Proof of Claim in the Chapter 11 Case and the amount of the Fund’s Claim will be determined in the first instance by the District Court.

The problem stems from the fact that Global Brokerage’s Disclosure Statement makes no mention of the Fund Class Action. The Fund’s Claim appears to be classified as a “Class 6 Claim”. And Global Brokerage has estimated that the amounts of all Class 6 Allowed Claims are $0.00.

Given that the Disclosure Statement makes no mention of the Fund Class Action, it is not possible to determine whether the Debtor’s estimate includes the Fund’s Claim.

As a result, the Fund seeks certain clarification language be incorporated into any Confirmation Order:

Notwithstanding anything contained in the Plan, any Plan Document, any Plan Supplement or the Confirmation Order to the contrary, nothing contained in the Plan, any Plan Document, any Plan Supplement or in the Confirmation Order, as any of the forgoing may be amended, modified or supplemented, will (a) in any way limit or affect any right or ability of the Fund to fully prosecute or settle the Fund’s consolidated class action pending in the United States District Court for the Southern District of New York (Case No: 1:15-cv-03599-KMW), as the complaint therein may be amended from time to time, against the Debtor and Dror Niv, the Debtor’s chief executive officer in the relevant time period (the “Fund Class Action”) against the Debtor and all non-Debtor defendants therein, including appeals (b) in any way limit or affect any right or ability of the Fund to enforce any judgement or settlement obtained in connection with or relating to the Fund Class Action against the Debtor and all non-Debtor defendants therein, including from proceeds of applicable insurance; or (c) extend or reserve the Bankruptcy Court’s jurisdiction over or with regard to such litigation, or otherwise affect the jurisdiction of the United States District Court over the Fund Class Action.

The plan confirmation hearing is scheduled for January 17, 2018.

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