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Pension fund sues FXCM for fraud over drop in stock on Swiss franc

May 8 (Reuters) - A pension fund has sued U.S. currency broker FXCM Inc for allegedly misleading investors about its financial prospects and concealing weaknesses in its core business before its stock dropped 90 percent in January.

The International Union of Operating Engineers Local No. 478 Pension Fund accused FXCM of fraud and artificially inflating its stock price in the complaint, filed in federal court in New York. The complaint said that FXCM, which provides currency brokerage services to retail clients, claimed its currency trading model was "extremely low-risk" and volatility in the foreign exchange markets was good for its business.

The complaint seeks class-action status and undisclosed damages. In addition to the company, the suit names FXCM's chief executive, Dror Niv, and chief financial officer, Robert Lande.

The complaint also accused Lande of insider trading, saying that he sold more than $3 million of his personal holdings of FXCM shares while the price of the stock was artificially inflated.

FXCM would vigorously defend the allegations, company spokeswoman Jaclyn Klein said in an email.

FXCM customers experienced losses of $225 million after the Swiss franc surged as much as 41 percent against the euro in January, following a decision by the Swiss National Bank on Jan. 15, 2015, to end a policy in place since 2011 that allowed the franc to trade freely against the euro, according to the complaint.

The pension fund said it is seeking class action status for investors who bought shares in FXCM between June 11, 2013, and Jan. 20, 2015.

The pension fund in its complaint also cited FXCM's announcement on Jan. 16, 2015, of a $300 million loan extended by Leucadia National Corp made shortly after the Swiss Bank's decision. It said the terms of the loan were described as "highly punitive," and nearly all shareholder value in the company was wiped out. Trading in FXCM's stock was suspended.

Trading in the stock resumed on Jan. 20. The shares closed at $1.60, down from the prior close on Jan. 15 of $12.63, the complaint said.

The complaint said FXCM stock "traded at artificially inflated prices during the class period."

The case is In re: International Union of Operating Engineers Local No. 478 Pension Fund v. FXCM Inc., U.S. District Court, Southern District of New York (Manhattan), 15-cv-03599 (Reporting by Ramkumar Iyer in Bengaluru; Editing by Leslie Adler)