FXCM lays off 150 employees and redoes Leucadia agreement in wake of US market exit

Continuing the amazing drama in the wake of the ban of retail forex broker FXCM Inc (NASDAQ:FXCM) and its CEO Drew Niv from the US FX market, and the subsequent sale of FXCM’s US clients to rival Gain Capital Holdings Inc (NYSE:GCAP), LeapRate has learned that FXCM has made filings with US regulators that it plans to terminate about 150 employees.

The 150 employees represent about 18% of FXCM’s global workforce of more than 800.

The layoffs at FXCM should not really come as a big surprise. In the FXCM press release made yesterday, the company indicated that it would not be transferring any costs (i.e. employees) to Gain Capital as part of the sale of its US clients to its rival.

We believe that many if not most of the layoffs come from FXCM’s accounting and compliance operations. Running a regulated US brokerage requires a fairly large team to deal with the multitude of complex filings which much be made, some on a daily basis, to US regulators. Those people will not be needed as FXCM exits the US forex market.

FXCM also indicated that it had reworked some aspects of its agreement with Leucadia National Corp (NYSE:LUK). Among the changes were more powers given to Leucadia to terminate for any reason the new bonus structure the company introduced last year for senior management, incentivizing FXCM senior management for paying down the company’s loan from Leudcadia.

The text of FXCM’s filing with the US Securities and Exchange Commission (SEC) reads as follows:

Item 1.01    Entry into Material Definitive Agreement

Settlement Agreements

On February 6, 2017, FXCM Inc. (the “Company”) announced simultaneous regulatory settlements with the National Futures Association (the “NFA”) and the Commodity Futures Trading Commission (“CFTC”) against its U.S. subsidiary, Forex Capital Markets LLC, FXCM Holdings, LLC (“Holdings”) and certain of its principals. The named FXCM entities and principals neither admit nor deny the allegations associated with the settlements. The NFA settlement has no monetary fine, and the CFTC settlement includes a $7 million fine.

Pursuant to the settlement agreements, the Company will be withdrawing from business in the United States. Withdrawing from this business will free capital that will be used to repay a portion of the outstanding loan from Leucadia National Corporation (“Leucadia”) to the Company. Proceeds from the account sale also would be used to repay the loan from Leucadia.

Amendment to Management Agreement

On February 2, 2017, each of FXCM Group, LLC (“Group”), FXCM Holdings, LLC, and LUK-FX Holdings, LLC (“Leucadia”) entered into Amendment No. 1 to the Management Agreement of FXCM Group, LLC (the “Management Agreement Amendment”), which amended that certain Management Agreement between FXCM Holdings, LLC and FXCM Group, LLC, dated as of September 1, 2016 (the “Management Agreement”), which was disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2016.

Pursuant to the Management Agreement Amendment, the Management Agreement was modified to provide Board Members (as defined therein) with certain rights of termination. Specifically, the Management Agreement Amendment specifies that the Management Agreement may now be terminated by a vote of at least three (3) members of the Group Board after the occurrence of certain events, including a change of control.

Acknowledgment Regarding Bonus Plan

On February 2, 2017, Group and Leucadia also entered into an acknowledgment (the “Acknowledgment”), as it relates to that certain FXCM Group, LLC 2016 Incentive Bonus Plan for Founders and Executives, effective September 1, 2016 (the “Plan”), which was disclosed in the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2016.

Pursuant to the Acknowledgment, each of the Group and Leucadia agreed that, notwithstanding anything to the contrary in the Plan, Leucadia may terminate the Plan on behalf of Group at any time and for any reason in its sole discretion.

Item 2.02    Results of Operations and Financial Condition

The settlement referred to under Item 1.01 will be reflected in the Company’s results for the year ended December 31, 2016. The restructuring referred to under Item 2.05 will be reflected in the Company’s results for the three months ended March 31, 2017 . The Company’s U.S. business had unaudited 2016 net revenues of approximately $48 million and generated an EBITDA loss, but the costs associated with the business will not be transferring to GAIN. Withdrawing from this business will free approximately $52 million in capital.

A copy of the press release announcing the settlements with the NFA and the CFTC are furnished herewith as Exhibit 99.1.

Pursuant to general instruction B.2 to Form   8-K,   the information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Item 2.02, including Exhibit 99.1, shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended (the “Securities Act”), except as shall be expressly set forth by specific reference in such filing or document.

Item 2.05    Costs Associated with Exit or Disposal Activities

The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.05.

In connection with its withdrawal from business in the United States pursuant to the settlement agreements with the NFA and the CFTC, the Company intends to implement a restructuring plan that includes the termination of approximately 150 employees, which represents approximately 18% of its global workforce. The Company expects to recognize most of these pre-tax restructuring charges in the three months ending March 31, 2017 and potentially in subsequent quarters.

Amounts related to this action are still being calculated and will be provided via an amendment to this Current Report on Form 8-K. Additional details will be provided in the Company’s Form 10-K for the year ended December 31, 2016.

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