Struggling Infinium Capital negotiates to sell assets to FXCM

CHICAGO Thu Jan 9, 2014 5:10pm EST

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CHICAGO (Reuters) - Foreign-exchange brokerage FXCM Inc (FXCM.N) said on Thursday it was in talks to acquire assets of high-speed trader Infinium Capital Management in a deal that could allow the broker to expand into commodities and other markets.

The negotiations coincide with a lawsuit brought against Infinium by 31 former employees who claim company leaders duped them into investing millions of dollars into the firm while hiding financial troubles.

FXCM, which last year bought a $12 million note issued by Infinium, said in a statement that it has not yet made a formal offer for Infinium's assets.

The lawsuit against Infinium "does not have a bearing on our transaction as it does not impact the assets we are proposing to acquire or the individuals who we would be hiring into our new entity," FXCM said, without specifying which assets it was interested in.

Infinium was not immediately available to comment.

The privately held firm is among the higher-profile electronic trading groups and a household name among Chicago traders. The firm trades in commodities, energy and other markets.

Financial problems at Infinium date back years, according to the lawsuit filed this week in U.S. District Court in Chicago. The firm lost $6.6 million in 2012 and $6.1 million from January 1 to July 31, 2013, it says.

The lawsuit names Infinium, co-founders George Hanley and Charles Whitman, and other leaders as defendants.

According to the suit, the company tricked 31 employees into converting more than $4 million in loans to Infinium into equity in the firm without disclosing it had cash flow problems. That was alleged to have happened on or before March 2, 2012 and by last September, the investments were worth "negative" $18 million, the lawsuit says.

Infinium was "at great risk of failure if its finances did not improve," the lawsuit says.

A favored tool of hedge funds and other institutional traders, high-speed trading uses so-called algorithmic software programs to post orders in the blink of an eye.

Firms have struggled financially because of increased competition and regulatory oversight, low interest rates that have hurt volume and volatility, and the uncertain global economic recovery.

Infinium last year shed a number of employees, including its chief operating officer, and Hanley came out of retirement to lead the firm.

The company recently started reducing its trading portfolio, President Mark Palchak said in an interview last month. He was not named as a defendant in the lawsuit.

FXCM shares were up 0.6 percent at 17.97.

(Reporting by Tom Polansek; Editing by Steve Orlofsky)

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