Court approves class action on alleged Plus500 manipulation

Plus500

The Tel Aviv District Court has not accepted the Israeli online trading firm's explanation of its pause mechanism and ordered Plus500 to provide details on all pauses in the past seven years.

The Tel Aviv District Court has granted approval to litigate on a class action suit against Plus500 Israel, a subsidiary of global online trading services company Plus500 (LSE: PLUS), which is headquartered in Israel and has a market cap of £1.4 billion on the London Stock Exchange. Plus500 operates its online trading services in 32 languages allowing users to buy financial instruments in currencies, commodities and the indices of stock exchanges worldwide in real time.

In June 2016 Asher Torgeman bought put options on the Frankfurt Stock Exchange DAX index for €1,000 in the belief that in contradiction to the polls, the British would vote for Brexit in the UK referendum, thus causing European stock markets to fall. When the results showed that Brexit had prevailed, he asked to sell the options but was told he could not make the sell.

In response, Plus500 told Torgeman that following the UK referendum, "The German 30 instrument and all the options for that instrument were not available for trading because of the very high volatility in the market, which had created larger margins than usual …….. and that created high risk for traders. Accordingly, Plus500 had taken action to reduce this risk."

Protecting customers?

Torgeman filed his suit through Adv. Hanoch Ehrlich of the Hadah Roth Shenhar Helfer & Co. law firm for approval to conduct a class action. In the request, it was claimed that trading was paused for 90 minutes only for those asking to sell put options. Although at the same time, trading in financial instruments that moved in the opposite direction - call options - and had fallen 76.51% continued as usual even though they were also based on the DAX. According to Torgeman, Plus500 did not renew options trading for 90 minutes, which violates many clauses in the Securities Law, and the aim was to prevent Plus500 from making losses.

Plus500 claimed that the pause in trade is a mechanism, automatically operated in real time according to pre-determined criteria, which is designed first and foremost to protect customers. Plus500 also claimed that the mechanism operates symmetrically for both selling and buying of financial instruments regardless of the loss or profit at the time that the pause mechanism is operated. Plus500 attached an expert opinion from Prof. Avner Kalay, an expert in capital market trading and finance.

Judge Magen Altuvia dismissed the company's claim that this was an automatically operated defense mechanism. He said, "The work automatic should not be used to remove responsibility as if the act was not carried out by the company." He added, "Plus500 is responsible for programming the automatic software and feeds in the parameters for these pauses. It is up to it to prove that during the hour of the pause that it was designed for the benefit of its customers."

Previous indications

The judge also ruled that, "It is not possible to say that the volatility on DAX based assets or options took place without warning or previous indications. Even if there was extreme volatility in the rate of options or basic assets, it would seem, that the company was not entitled to pause the trading."

Judge Altuvia added that Plus500 ignored the fact, as documented by the plaintiff, that it was not possible to trade in put options but was able to trade in call options. "Even though this was a financial instrument that was traded with a fall of 76.51%, that is to say a larger loss of tens of percentage points for customers who bought it before the results of the referendum was published."

A violation of Securities Law

In light of this, Judge Altuvia wrote that contrary to the claims by Plus500 that the pause in trading and its non resumption, were only taken to protect customers, "It seems that the decisions to pause trading were not symmetrical and on the face of it at this stage and it seems that they worked for the benefit of the company."

Judge Altuvia added, "On the face of it at this stage, and despite the explanations attempted by Plus500 CEO Yevgeni Schtuckmeyster, to provide as part of the investigation about the way the risk management team works, it doesn't seem that there was a reasonable cause to differentiate between financial instruments based on the same asset."

Judge Altuvia pointed out that Plus500's experts, who cla8med that the pause in trading was symmetrical, di not check at all what had happened in practice when there was a pause of trading on that day in June 2016 and that the opinion was not based the company's data and they had not even seen how the company's trading pause operated.

Altuvia also wrote that, "It seems that the risk management team stopping and resuming trading in the market arena is tainted with a conflict of interests.." The court added and ruled that there is something reasonable in the statement that trading contravened the Securities Law while violating other laws.

At the end of his decision, Judge Altuvia wrote that although only discussed stopping options trading from June 24 2016 and there are no details about other pauses in trade and their circumstances, "Even so the aforementioned event in which the pause and the non-pause in trade were 'caught' at the same time raises apparent concerns about the conduct of the company and is automatic and manual trading pause mechanism. It is up to the company to present as requested within 30 days details of the pauses in trade that occurred over the past seven years prior to submission of the request, their amount, and details of deals that were blocked and the reason that they took place."

Adv. Ehrlich said, "This is a dramatic ruling after the plaintiff clearly proved how Plus50 manipulates trading in order to prevent its customers from profiting, especially in the specific circumstances of this incident because the day after the Brexit referendum was one of the busiest days on the world's capital markets and Plus500 paused trading for 90 minutes in the most dramatic hours on that day and did so only for customers making a profit. The ruling has local and international significance because Plus500 is a huge international conglomerate with branches worldwide managed by virtual trading in a similar way (subject to local regulation). We estimate that now in according with the court's decision we can receive real data regarding the event that is the subject of the lawsuit and for events over the past seven years.

Published by Globes, Israel business news - en.globes.co.il - on October 25, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018