“Zulutrade has a history of regulatory problems” says NFA as it files complaint
The National Futures Association (NFA) has filed a complaint against one of the very first, and most widely used social and copy trading platforms in the retail FX industry – Zulutrade. The complaint, which cites both Zulutrade and its owner and CEO Leon Yohai, both entities based in Greece, covers various aspects including failure to […]
The National Futures Association (NFA) has filed a complaint against one of the very first, and most widely used social and copy trading platforms in the retail FX industry – Zulutrade.
The complaint, which cites both Zulutrade and its owner and CEO Leon Yohai, both entities based in Greece, covers various aspects including failure to cooperate with the NFA’s ruling on anti-money laundering procedures, as well as falling below the required capital adequacy levels, and makes reference to the firm having conducted business with approximately 400 clients in geographical regions in which Zulutrade is prohibited from doing business, including Iran, Syria and Sudan.
According to the NFA’s complaint, Zulutrade, which is located in Greece, has a “history of regulatory problems“, and the NFA’s recent findings have led to this potential action.
The NFA states that Zulutrade misclassified receivables from U.S. and foreign brokers and failed to record certain liability balances.
Specifically, Zulutrade incorrectly included commissions earned more than 30 days prior as current which led to Zulutrade overstating current assets by $1,870, which also resulted in a decrease of a haircut charge of $820.
Further, in May 2015, Zulutrade made payments totaling $6,529 for liabilities incurred in April 2015, to signal providers and individuals who referred customers to Zulutrade, however, Zulutrade failed to record a corresponding liability on its April 30, 2015 net capital computation.
Adjustments made to the foregoing reporting errors reduced Zulu’s excess net capitalfrom $17,828 to $250 as of April 30, 2015. Zulutrade entered into an intercompany agreement with its affiliate, Zulutrade LTD (Zulu LTD), whereby Zulu paid Zulu LTD rebates for certain trades executed in Zulutrade LTD’s customer accounts.
At the beginning of each month, Zulu made prepayments to Zulutrade LTD based upon an estimate for the month. As a result, Zulutrade recorded a decrease in cash and an increase in current pre-paid assets, which Zulutrade incorrectly classified as a current asset.
The decrease in cash caused Zulutrade to fall below its minimum ANC requirement on three dates – February 5. 2015, March 3,2015, and March 4,2015.
By reason of the foregoing acts and omissions , Zulutrade is charged with violations of NFA Financial Requirements Section 5(a).
Anti Money Laundering policy
The NFA complaint alleges that Zulutrade relied on four forex dealers to implement and ensure compliance with the requirements of Zulutrade’s customer identification program (ClP).
Two of these dealers, Triple A Experts lnvestment Services S.A. (Triple A) and MIG Bank, Ltd.(MlG) (now known as Swissquote Bank Ltd (Swissquote)) are located in foreign countries – Greece and Switzerland – and are not regulated by NFA or the CFTC. Further, neither of these entities is subject to a compliance program under the BSA or regulated by a federal functional regulator.
Zulutrade’s AML program specifically states that Zulu will rely on the FCM or forex dealer to perform the customer identification program if the reliance is reasonable under the circumstances.
Additionally, this is required if the other financial institution is subject to an AML compliance program requirement under the BSA and is regulated by a federal functional regulator; and if the other financial institution enters into a contract requiring it to certify annually to Zulutrade that it has implemented an AML program and that it will perform the specified requirements that it is required to perform.
According to Zulutrade’s AML procedures, Zulutrade is required to conduct ongoing reviews of customer accounts during the account opening process as well as after accounts are opened and the accounts are actively trading. The purpose of these reviews is to identify red flags suggestive of suspicious activity, e.g., “a customer engages in extensive, sudden or unexplained wire activity especially wire transfers involving countries with bank secrecy laws).’,
While Zulutrade performed a high level of review of a customer’s information if the firm interacted with that customer, Zulutrade did not review the activity in its customer accounts for red flags related to customer account funding and cash activity and, instead, left that responsibility to its domestic and foreign forex dealers.
Finally, Zulutrade had never had an independent audit of its AML program performed since it became an IB in October 2011.
NFA cites previous complaint and settlement
Within this complaint, the NFA takes a look at its previous scrutiny of Zulutrade. In 2011, the NFA complaint against Zulutrade for failing to maintain required minimum adjusted net capital and failing to keep required books and records. At that time, Zulutrade settled the 2011 case by agreeing to pay a fine of $10,000.
More recently, in September 2014, the Office of Foreign Assets Control (OFAC) of the U.S. Department of Treasury took an enforcement action against Zulutrade for introducing accounts for over 400 individuals from lran, Sudan, and Syria, countries with which Zulutrade was prohibited from doing business.
As a result, Zulutrade was fined $200,000 in the OFAC action.
The Commodity Futures Trading Commission (CFTC) also took an action in September 2014 against Zulutrade, charging the firm with failure to supervise its antimoney laundering (AML) program by not implementing its procedures for screening potential accountholders to determine if they were from OFAC targeted countries.
Zulutrade settled the CFTC case by agreeing to pay a $150,000 civil monetary penalty and disgorge profits of $80,000 at that time.