The Eagle has landed! Fortress Prime’s former CEO arrives in Cyprus to sell services into retail brokerages
Just over a year after the demise of Fortress Prime, Mitch Eaglstein’s Forex Development Corporation embarks on selling consultancy and liquidity into Cyprus brokerages this week. We examine the details.
At the beginning of last year, a textbook example of why companies in the OTC retail FX industry should only ever place their institutional business with liquidity providers and prime of prime brokerages that are genuine and have actual prime brokerage agreements with Tier 1 banks and large non-bank executing venues became a high profile moot point across the entire world.
The demise of Fortress Prime, whether an intentional attempt to cut and run from the outset, or a straight forward case of overtrading and operating on a revenue share basis created a lack of ability for the company to satisfy its obligations, was a milestone in creating even greater transparency within institutional and B2B relationships as the company evaporated, leaving several brokerages high and dry, some of which did not survive and are no longer.
Among those who did survive are brokerages which had to pay their clients from their own pocket, and firms that have gaping holes in their balance sheets due to debts created by Fortress Prime’s disappearance, one example being over $8 million owed to FXCM.
Indeed, that is problematic enough, but what about small brokers in Cyprus that would have hinged their business on Fortress Prime’s attractive terms due to the ever more difficult access to liquidity from major Tier 1 banks and lack of a large enough capital base to work with a prime of prime?
Those firms suffered tremendously, and it was not pure rotten luck either. Fortress Prime was riddled with dubious practice, as described by FinanceFeeds at the time of its demise.
In April 2016, FinanceFeeds broke the news that Fortress Prime had taken its website offline, signaling the end of the road for the UAE-based ‘prime brokerage’ which has been at the forefront of industry news for almost a year.
Revelations such as one of its senior directors being wanted by the FBI for fraud and Interpol, and prolonged non-payment of withdrawals despite being alleged that they are very well funded, have the industry scratching their heads wondering how the firm continues to operate under another brand www.fortressdubai.com.
FinanceFeeds made several attempts at the time to establish contact with members of the firm’s senior executives in order to provide official comment with regard to the fact that the business is still ongoing under the name of Fortress Dubai.
Moreover, to allow comment on the fact that Mr. Hamed Mokhtar (also known as Hamed El-Barki), wanted by the FBI for an alleged involvement in a US$2 million mortgage-related fraud, continues to serve as Managing Director at Fortress Capital Investments LLC despite an official statement that he stepped down.
Fortress Capital Investments LLC, the registered entity behind Fortress Prime and Fortress Dubai; have chosen to ignore contact from FinanceFeeds and after abruptly ending phone calls, stopped answering telephones after lunch time GMT. FinanceFeeds will continue to pursue comment directly as well as through local journalists.
Alongside many other media sources and third party suppliers, FinanceFeeds had a media partnership contract with Fortress Prime which has also been the subject of defaults.
Investigations by FinanceFeeds have been able to establish that, far from closing and winding down the operations of Fortress Prime, the brand’s owner. Fortress Capital Investments LLC has simply taken the website of Fortress Prime offline, and kept the whole entity going under a new website, Fortress Dubai.
Although masquerading as a private equity arm of Fortress Capital LLC, the listing for the team on Fortress Dubai’s website is empty, however; calls to Fortress Dubai requesting staff members known to be associated with FortressPrime confirmed they are the same. A reference to Sheikh Mohamed Bin Sultan Bin Hamdan Al Nahyan is also made, who was constantly referred to by Fortress Prime during its existence.
The company’s Vanguard private equity fund claims to “invest its shareholders’ capital in the equity of private companies mostly in UAE and its surplus cash awaiting investment in trade and bridge finance” a statement which denotes the flush cash status of the company.
Fortress Dubai shares the same address and contact details as the former Fortress Prime.
As far as research into the whereabouts of funds is concerned, Fortress Capital LLC and its owners have substantial wealth, and albeit owing monies to investors and service providers; the company we have been told is not in dire financial straits.
In February 2016, Fortress Prime claimed that it was in the process of obtaining a round of funding amounting to $200 million from the UAE Royal Family. Indeed, this never materialized, and the outlook for Fortress Prime was bleak.
Various contrasting reports were made by many media sources over the last few months, some stating that Fortress Capital LLC was to wind down Fortress Prime, and others stating that Fortress Prime was to begin processing withdrawals, with Fortress Prime placing the blame not on any difficulties regarding its cash position, but on administrative glitches.
One of the aspects of this which went unnoticed was the departure of CEO Mitch Eaglstein. Mr Eaglstein had joined Fortress Prime as CEO after leaving Boston Technologies where he was appointed Managing Director in January 2014, leaving the company just four months later.
Joining Fortress Prime as CEO placed Mr Eaglstein in a precarious position in that he was the figurehead for the company which is now notorious.
Last week, Mr Eaglstein surfaced in Cyprus, having paid a number of visits to brokerages in Limassol, the world’s largest center of retail FX brokerages.
Many brokerages have approached FinanceFeeds stating that he has turned up in Limassol offering consultancy services for a technology company, and we have been contacted by a number of CEOs who have informed us that he is offering the technology and is looking to establish himself in the region.
It has also been stated that Forex Development Corporation, the company Mr Eaglstein provides consultancy services on behalf of, has a close relationship with a retail FX brokerage and does not face institutional clients or interbank liquidity providers.
This is especially important when considering that very shortly after the demise of Fortress Prime, CySec took notice and issued a consultation paper regarding liquidity providers and the method by which they conduct their due diligence, looking at revising the counterparty agreement where exercising correct due diligence non-EU Counterparties.
In June 2016, in the aftermath of the Fortress demise, it was stated by CySec that should a broker be willing to use a liquidity provider which is not regulated, it would have to obtain proof that the firm in question is clearing all of its trades with an EU regulated company. Alternatively the liquidity provider will have to demonstrate that it has at least 10 per cent capital ratio.
If the liquidity provider is not able to demonstrate the 10% capital requirement, brokers also have the option to lodge additional capital of least €2,000,000 more on their balance sheet (on their LP business, NOT capital from retail B book trading).
At the time, this was viewed as a direct reaction by the regulator to the lack of due diligence that brokers in Cyprus displayed when actually taking a B2B relationship with Fortress Prime.
In cases such as this, brokerages looking to take such liquidity, either directly or via a commercial tie-up such as that provided by Forex Development Corporation alongside its consultancy services and technology, should ask all of the relevant questions as to exactly where that ‘liquidity’ is being provided from. Yes indeed, the retail FX company that he also represents has a retail FX office in Cyprus, with a CySec license, but it is an Israeli company and has British Virgin Islands registration under its Formula Investment House nomenclature, whereas iCFD, the company’s retail CFD brokerage is regulated by CySec.
Whilst FinanceFeeds acknowledges clearly that the massive amounts owed to clients and brokerages by Fortress Prime are not directly as a result of Mr Eaglstein’s tenure there as CEO, this matter remains of interest to the industry as a whole.
Additionally, FinanceFeeds recommends brokerages to always check that a liquidity provider has genuine prime brokerages arrangements in place in order to execute orders according to correct practice and process them in accordance with genuine prices from interbank FX dealers.
FinanceFeeds contacted Mr Eaglstein today for his perspective on this, and was referred to colleague Peg Reed, who declined to comment.