The Tel Aviv District Court has certified a class action lawsuit against publicly traded financial broker Plus500 (LSE: PLUS), thereby approving litigation. The claim alleges that the broker, who offers trading in such financial instruments as stock market indices, currencies and commodities, discriminately shut down trading for 90 minutes for corporate gain.
The lawsuit is being filed by Asher Torgeman, who bought €1,000 worth of put options in the DAX Index from Plus500 in June 2016. The German index, considered to be Europe’s leading stock exchange, was experiencing more volatility than usual as the continent found itself in the throes of the Brexit debate.
While financial polls and pundits predicted that the UK’s Brexit referendum would be voted down, Torgeman traded against the tide, and was proven correct when the British voted to leave the European Union, causing European stock markets such as the DAX to fall. When Torgeman tried to sell his options, Plus500 refused, on the basis that the high volatility “created a high risk for traders, and Plus500 had taken action to reduce this risk.” The broker paused trading for 90 minutes.
However, the complaint alleges that the broker only restricted trading for put options but continued to allow call options in the DAX to be traded so as to protect its own losses. If this allegation is true, it would constitute a number of violations of Securities Law.
The company’s defense claimed that this disruption in trading is an automated system put in place for the protection of traders and applied equally to both call options and put options traders. The company submitted the expert opinion of Professor Avner Kalay, who is considered a specialist in capital market trading and finance.
This defense, however, was summarily dismissed by Judge Magen Altuvia, who said that automation does not relieve the broker of its responsibility for the system’s impact on trading, and that it must prove that the system was designed for the benefit of all traders. The judge also suggested that Plus500 did not have grounds to pause trading, given that the volatility of the stock markets, particularly European stock markets like the DAX, was not without warning.
Judge Altuvia further dismissed the claim that the pause in trading was indiscriminatory, citing the fact that trading was not paused for traders of call options, despite falling 76.51%. Lastly, the judge dismissed Kalay’s expert opinion, saying that the opinion was abstract and that the expert had neither reviewed the company’s data nor the company’s operations related to the stall in trading.
"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,” wrote Altuvia. "…despite the explanations attempted by Plus500 CEO Yevgeni Schtuckmeyster…it doesn't seem that there was a reasonable cause to differentiate between financial instruments based on the same asset."
The judge has ordered the company has 30 days to provide detailed data pertaining to this automated mechanism and its use over the last 7 years.
The attorney for the plaintiff, Adv. Hanoch Ehrlich of the Hadah Roth Shenhar Helfer & Co. law firm, said: “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).”
This would not be the first time Plus500 has run into legal trouble. In 2012, the company’s UK subsidiary, Plus500UK Limited, was fined £205,128 by the UK’s Financial Services Authority for failing to report 189,000 reportable transactions. Plus500 also settled with the Belgium Financial Services and Markets Authority in 2017 for €550,000 after allowing retail traders to speculate on financial markets without owning underlying stock.