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Screenshot of a breaking news alert e-mail from Q2 2017
LeapRate Exclusive… There has been quite an amount of information (and misinformation) circulating the past few days and weeks about Dubai-based FX liquidity and white label solutions provider Fortress Prime. We believe that much of that (mis)information originated from the now-former management team which was originally brought in to run Fortress Prime, and which had been misleading Fortress Prime’s shareholders as to what was really going on in the business for quite some time.
Fortress Prime was started in August 2014 as a division of Fortress Capital Investments, a diversified financial and investment company controlled by the Emirates’ Royal Family. After about one year of operation the shareholder group found out that many things (including but not limited to financial figures) didn’t match with the reports given to them by the senior management of Fortress Prime.
Things such as providing large credit lines to clients without first having them post margin, clients trading on a delayed price feed, reports from management to shareholders having zero correlation to what was really going on, mismanaged risk – all became the norm at Fortress Prime.
Not surprisingly, the shareholders eventually terminated Fortress Prime management (they did not resign, as was reported elsewhere).
The parent company is not, however, giving up on the business. Contrary to certain erroneous reports Fortress Prime is not being wound down. As they continue to investigate the actions of the former management team and some of the contracts they signed, a new management team is being brought in, and fresh capital is being invested in the company. New back office systems have been put in place from new vendors. Any money owed to clients is being repaid.
LeapRate has received an exclusive and official statement (see text below) on the situation from Fortress Prime parent company Fortress Capital Investments, and has discussed the situation at length with the parent company in the UAE, which remains dedicated to the business.
Statement from Fortress Capital Investments
Fortress prime is a start up unit, and with most start up companies there are a tremendous number of variables at play. The prime division of Fortress was initiated as a litmus test into an industry where all shareholders felt keen on getting into. However, with the lack of necessary intellectual capital at the group level to execute such a plan in a very specialized industry, we hired some of the brightest minds in the business.
With such young bright minds and the knowledge that we are an Emirati company with the support of Royal Shareholders, commencing such an amazing endeavor a lot of excitement and overzealousness came with the inception of Fortress Prime. This is something all were guilty of without exception.
With a very aggressive business plan approved by the shareholders, Prime became successful capturing a decent portion of Market Share. The plan was seemingly flawless.
The growth was fast and the exposure was tremendous. Contracts were designed to fishnet clients very aggressively, but deal making became loosely structured and the margin of safety began to diminish. During this period there were little to no warning signs (to the shareholders) of any oncoming issues. The shareholders were receiving reports from management generated by a leading industry CRM provider, reflecting very strong and solid growth using metrics that were determined later had zero correlation with actual bottom line performance. These metrics were primarily built around certain volume benchmarks.
When it finally became evident the company was actually losing money, it came in like a tsunami, becoming a near overnight revelation to the shareholders. The short-lived ride on the gravy train was over. Thereon after an onslaught of withdrawals, ‘a run on the bank’ manifested. The inability for shareholders to gauge what had gone wrong coupled with the inability of management to explain how business had taken a sudden turn caused doubt, suspicion and later plenty of negative content by media and understandably disgruntled clients. Curiosity as to why the shareholders did not clean up the mess was evident and understandable. Shareholders needed answers and a formal investigation was launched into what the cause behind the operational failure was. Every detail needed to be uncovered before the decision to either recommence and fund the failed mechanism, or restructure, after full comprehension of what went wrong and then fund with anew operational structure and management mechanism in place. Was this just a fluke period in an already understandable extremely volatile business, or was there a fundamental flaw? That was a question that needed answering.
Funding was extremely delayed, however shareholders allowed for certain measures to be met in order for good faith to be established between the customers and the company until such decisions were made and information divulged. One of which was continual open communication with one of the shareholders representatives and the said batch of clients along with the issuance of security checks. It was important that clients realize there was no arm-twisting in the issuance of said security. It was done strictly on good faith, to avoid certain conclusions to be drawn.
Some of the findings of the investigation are as seen below:
- Failed structuring and approval of certain clients, under Risk Share Agreements, whereby they were provided with excessive Credit Limits and Profit Sharing deals.
- Failure to properly prepare, implement and follow reasonable credit issuance policies, procedures and underwriting guidelines, which are mandatory to manage such risks and to minimize Company’s liabilities and bad debts.
- The Director of Prime not only failed to communicate to the shareholders but also misrepresented certain trading relationships and trade flow with major clients.
To explain the situation in a fully transparent way:
Clients were trading by predefined set up requested by THEM. This caused the client to execute trades on prices better than the best available market price. In addition, those clients were trading on XXXXX prices at Fortress Prime, which resulted in a trading environment prone to manipulation by the market.
With that said, management supervision allowed certain clients limited withdrawal of funds from the company’s account before requesting minimum capital deposits from these clients. This resulted in a moral hazard where clients traded in a manner knowing that they have nothing to lose and are protected against the risk, while the company will incur all the cost.
Furthermore, those clients were offered uncollateralized trading limits and did not respect margin calls.
They were granted temporary overnight credits in addition to the long term trading limits to cover their positions upon their request and thus protecting their accounts from being liquidated several times. Those credits were never settled, which by normal market practice give the company the right to liquidate any open position and formally request the clients to cover any outstanding credits.
There was almost no effort in properly managing trading risks, especially when dealing with a third party risk management provider, and management ignored signs that several customers were trading on a delayed price feed which increased the company’s counterparty risk, while favorably allowing clients to enter/exit positions against the company’s position. Further, senior management failed to communicate to shareholders of such risks in a timely manner so that the company could take corrective actions.
The above information has been discovered and changes have been implemented. The business will not close its doors. There are and will continue to be key management changes, including that of the sales management. Clients, whether or not they benefited from the above structure, will be made whole. There will be no partial settlements. Repayment schedules for this batch of clients have mostly all been approved and are currently being executed.
If you are a client of Fortress Prime from within this batch and have not yet been contacted by a representative for the repayment schedule please contact at your earliest convenience:
Mr. Bashar Al Amsayba