Easy Forex Might Face 500 MLN Shekel Class Action Lawsuit, Israeli Paper Estimates

Sunday, 14/09/2014 | 13:56 GMT by Avi Mizrahi
  • The Tel Aviv District Court has recently decided that there is a "probable chance" that one of the biggest Israeli brokers will qualify as offering unlicensed investment advice, marketing and investment management.
Easy Forex Might Face 500 MLN Shekel Class Action Lawsuit, Israeli Paper Estimates
easy-forex_logo

Cyprus headquartered brokerage, Easy Forex , might soon find itself facing a massive lawsuit according to information revealed today by the Israeli financial newspaper, Globes.

On August 19th the Tel Aviv District Court ruled that there is a "probable chance" that Easy Forex, once one of the biggest FX brokers in Israel, was operating as an investment advisor firm and investment marketing firm. The firm has even took actions that qualify as investment management, via a firm called Forex Center, and therefore may be subject to the Israeli Investment Management Law.

The decision was made in a case filed by five Israeli clients of Easy Forex who requested the court's approval of a class action lawsuit against the firm, its shareholders and executives.

In the original complaint from 2010 the plaintiffs have admitted difficulties in assessing the lawsuit's worth and estimated it around tens to hundreds millions of shekels. The Israeli paper however has reported its worth by half a billion Shekels (about $137 million).

The traders claimed that the firm's clients lost millions of shekels in a short period of time, called FX trading a fraud and also claimed that the brokers benefited from the client losses.

Easy Forex asked the court to reject the class action lawsuit request, calling it "demagoguery, full of meaningless populist statements and based on baseless factual and legal assumptions." The firm also claimed that its legal agreement specifically states that it is a market maker and that it is easy to prove that: "Easy Forex lacks the will, interest and ability to make its client lose."

Additionally, one of the main claims of the plaintiffs is that Easy Forex provided investment advice, marketing and investment management, and is therefore subject to the Israeli Investment Management Law which forbids conflict of interest and offering of such services without a specific license.

Unlike stock brokers, CFD, Binary Options and Forex brokers operate in Israel without an investment management license and the industry regulations only came into effect in August 2014.

Investment Advice

To get to the bottom of these accusations the court reviewed a long line of Easy Forex clients' testimonials. At the end of the testimonials the judge determined that there is a probable chance that the plaintiffs will be able to prove that the firm offered investment advice and management.

The judge said: "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."

Secondly, it was determined that "a considerable part of the plaintiffs' witnesses testify in their interrogations that representatives of Easy Forex Trading room provided them with market estimations, future data forecasts and even recommendations for specific deals. On the face of it, this is information that falls under investment advice."

Thirdly, the judge said that Easy Forex and the other accused "presented a very weak infrastructure of evidence to support their claim that they forbid giving advice, and that advice was not given in practice by the firm or its representatives."

Nevertheless, the judge mentioned that from the evidence presented so far it is not possible to determine the number of clients who received advice, as well as the level of advice given to each client regarding his trades.

The judge wrote, "While it is clear to me that Easy Forex does not manage nor issue the global FX rates, and does not control them, I admit that at this stage I do not know if you can say the same for all the financial instruments offered to its clients to trade on, which include more than FX rates and options.

"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."

Investment Portfolio Management

The judge also took note of Easy Forex's confirmation that it is the counterparty to the clients' deals and not a custodian of the client, determining that under these circumstances, and as the firm admits, it does not cover itself against every trade, and therefore it is not possible to reject an interpretation that the firm was engaging in investment marketing.

As for the plaintiffs' claim that some of the investment portfolios of Easy Forex's clients were managed by another company - Forex Center Ltd., the judge noted that there is no dispute that Forex Center did in fact manage the portfolios of some of the Easy Forex clients, those who gave permission to do so and were Forex Center clients.

The plains claimed that Forex Center's investment management was part of Easy Forex's operation. Easy Forex claimed the contrary saying that Forex Center is an external entity, that only operated as an agent recruiting clients on the Easy Forex platform.

At this stage, the judge favored the the plaintiffs' view on this point, as well as determining that they stood up to the "burden of initial proof, to bring supporting evidence to their claim that Easy Forex committed actions of investment portfolio management, as was done by Forex Center."

Easy Forex is not a newcomer to the Israeli court system. In 2010, it was slapped with a similar lawsuit by several former clients who also allegedly lost hundreds of thousands of dollars trading with the company. In 2011, the broker was put under a criminal investigation in Israel following that lawsuit. At the time, there were reports in the Israeli financial media that similar procedures were settled out of court by secret settlement agreements.

Tel Aviv District Court's Decision can be read here:

easy-forex_logo

Cyprus headquartered brokerage, Easy Forex , might soon find itself facing a massive lawsuit according to information revealed today by the Israeli financial newspaper, Globes.

On August 19th the Tel Aviv District Court ruled that there is a "probable chance" that Easy Forex, once one of the biggest FX brokers in Israel, was operating as an investment advisor firm and investment marketing firm. The firm has even took actions that qualify as investment management, via a firm called Forex Center, and therefore may be subject to the Israeli Investment Management Law.

The decision was made in a case filed by five Israeli clients of Easy Forex who requested the court's approval of a class action lawsuit against the firm, its shareholders and executives.

In the original complaint from 2010 the plaintiffs have admitted difficulties in assessing the lawsuit's worth and estimated it around tens to hundreds millions of shekels. The Israeli paper however has reported its worth by half a billion Shekels (about $137 million).

The traders claimed that the firm's clients lost millions of shekels in a short period of time, called FX trading a fraud and also claimed that the brokers benefited from the client losses.

Easy Forex asked the court to reject the class action lawsuit request, calling it "demagoguery, full of meaningless populist statements and based on baseless factual and legal assumptions." The firm also claimed that its legal agreement specifically states that it is a market maker and that it is easy to prove that: "Easy Forex lacks the will, interest and ability to make its client lose."

Additionally, one of the main claims of the plaintiffs is that Easy Forex provided investment advice, marketing and investment management, and is therefore subject to the Israeli Investment Management Law which forbids conflict of interest and offering of such services without a specific license.

Unlike stock brokers, CFD, Binary Options and Forex brokers operate in Israel without an investment management license and the industry regulations only came into effect in August 2014.

Investment Advice

To get to the bottom of these accusations the court reviewed a long line of Easy Forex clients' testimonials. At the end of the testimonials the judge determined that there is a probable chance that the plaintiffs will be able to prove that the firm offered investment advice and management.

The judge said: "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."

Secondly, it was determined that "a considerable part of the plaintiffs' witnesses testify in their interrogations that representatives of Easy Forex Trading room provided them with market estimations, future data forecasts and even recommendations for specific deals. On the face of it, this is information that falls under investment advice."

Thirdly, the judge said that Easy Forex and the other accused "presented a very weak infrastructure of evidence to support their claim that they forbid giving advice, and that advice was not given in practice by the firm or its representatives."

Nevertheless, the judge mentioned that from the evidence presented so far it is not possible to determine the number of clients who received advice, as well as the level of advice given to each client regarding his trades.

The judge wrote, "While it is clear to me that Easy Forex does not manage nor issue the global FX rates, and does not control them, I admit that at this stage I do not know if you can say the same for all the financial instruments offered to its clients to trade on, which include more than FX rates and options.

"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."

Investment Portfolio Management

The judge also took note of Easy Forex's confirmation that it is the counterparty to the clients' deals and not a custodian of the client, determining that under these circumstances, and as the firm admits, it does not cover itself against every trade, and therefore it is not possible to reject an interpretation that the firm was engaging in investment marketing.

As for the plaintiffs' claim that some of the investment portfolios of Easy Forex's clients were managed by another company - Forex Center Ltd., the judge noted that there is no dispute that Forex Center did in fact manage the portfolios of some of the Easy Forex clients, those who gave permission to do so and were Forex Center clients.

The plains claimed that Forex Center's investment management was part of Easy Forex's operation. Easy Forex claimed the contrary saying that Forex Center is an external entity, that only operated as an agent recruiting clients on the Easy Forex platform.

At this stage, the judge favored the the plaintiffs' view on this point, as well as determining that they stood up to the "burden of initial proof, to bring supporting evidence to their claim that Easy Forex committed actions of investment portfolio management, as was done by Forex Center."

Easy Forex is not a newcomer to the Israeli court system. In 2010, it was slapped with a similar lawsuit by several former clients who also allegedly lost hundreds of thousands of dollars trading with the company. In 2011, the broker was put under a criminal investigation in Israel following that lawsuit. At the time, there were reports in the Israeli financial media that similar procedures were settled out of court by secret settlement agreements.

Tel Aviv District Court's Decision can be read here:

About the Author: Avi Mizrahi
Avi Mizrahi
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About the Author: Avi Mizrahi
Azi Mizrahi, expert in fintech trends and global markets, enriches readers with deep insights.
  • 2727 Articles
  • 10 Followers

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