AFX Rejects Bad Faith Accusations, After Missing Settlement Deadline

The legal counsel of AFX Capital Markets Ltd (AFX) has rejected accusations that the company was acting in bad faith, following its failure to meet the conditions of a proposed stipulation of settlement.

Esther DuVal, in her capacity as the Chapter 11 Trustee of the jointly administered estates of Avenica Inc. and Gallant Capital Markets Ltd., is seeking Sanctions and Fees for Engaging in Bad Faith and Injunction Relief (the “Sanctions Motion”) against the broker.

In particular, DuVal has accused the AFX defendants (AFX Capital Markets Ltd., AFX Capital U.S. Corp., and STO Super Trading Online) of engaging in a manipulative strategy of delay, obfuscation, and fabrication in failing to comply with the stipulation of settlement.

In a letter addressed to the Honorable Elizbeth S. Stong, United States Bankruptcy Judge, Eastern District of New York, lawyers representing AFX, White and Williams LLP, have said that the Sanctions Motion is “entirely without merit.”

“Not only does it make a number of baseless allegations of bad faith, but it completely ignores that the Settlement Stipulation (ECF 49) previously signed by all of the parties expressly provides how the parties should proceed if indeed there was a default under the settlement,” said Heidi J. Sorvino.

“In particular, the Stipulation provided that, in the event of a default, the Trustee had the right to resume litigation. The Trustee exercised that right on June 26 and in the aftermath we have complied fully with the Trustee’s discovery requests.”

AFX fails to meet the settlement

On May 15, 2019, AFX and DuVal entered into a stipulation whereby, among other things, the AFX defendants agreed to settle the trustee’s claims in the litigation for $830,000.

A key requirement for the settlement was a deposit payment of $230,000, which was to be made by the May 30, this year. Mario Persichino, AFX's authorized representative, assured the trustee, through her counsel, that the money was available and would be paid.

With the multiple assurances, the trustee decided to proceed. The balance of the settlement sum was to be paid in three installments every thirty days. So far, AFX has failed to pay the money.

Loss of Cypriot license hindered the settlement

However, according to Sorvino, AFX’s settlement could not be completed due to the broker’s license being suspended in Cyprus. As Finance Magnates reported, the Cyprus Securities and Exchange Commission (CySEC ) suspended the licence of the broker in July for a period of 10 days.

Since then, CySEC has not said that the broker can resume its operations. The Financial Conduct Authority (FCA) has also suspended the license of AFX's UK subsidiary, AFX Markets Limited, and brokerage has entered into special administration.

“Notably, on the day we were first informed that AFX’s Cyprus licenses had been suspended, we advised Joseph Maniscalco, Esq., counsel to the Chapter 11 Trustee of the situation and told him that we needed to receive an update from the client regarding its status before we could address whether the parties’ settlement could be completed,” Sorvino outlined.

However, according to the letter, Maniscalco decided to file the sanctions motion anyway. As a result, White and Williams LLP have requested that the motion be withdrawn so the circumstances can be addressed with the court, but Maniscalco has not agreed to do so.

“Given the circumstances, we find ourselves in a quandary with no communication from our client yet a deadline to respond to the Sanctions Motion. We respectfully request that our response to the Sanctions Motion be held in abeyance and that the Court instead hold a conference wherein counsel and the Court can discuss an appropriate way to move forward,” Sorvino concluded.

US proceedings

A hearing is set to be held before the Honorable Elizbeth S. Stong on October 24. In the hearing, Duval is seeking the entry of an order for a judgment against the AFX defendants.

To summarise the case, Duval is representing Gallant Capital Markets, which went bankrupt in 2017. Gallant held money in AFX accounts, and when the company asked to withdraw the money, despite the balance of Gallant’s account going down, AFX never remitted the funds.