LeapRate has learned from regulatory filings that US financial regulatory body the National Futures Association (NFA) has issued a complaint to ZuluTrade and its principal Leon Yohai Giochais (known in the Forex industry just as Leon Yohai). The complaint charged ZuluTrade with failing to maintain minimum net capital and failing to implement the firm’s anti-money laundering (AML) program.
The complaint charged Leon Yohai personally with failing to adequately supervise the firm’s employees, agents and operations.
ZuluTrade and Leon Yohai have 30 days to issue a written response to the NFA’s complaint. While the events detailed occurred more than a year ago and the amounts involved in which ZuluTrade was ‘offside’ regulatory capital requirements were relatively small, the charges are nevertheless serious and could potentially result in ZuluTrade’s expulsion or suspension for a specified period from NFA membership.
ZuluTrade is a copy and social trading platform provider, and is registered as an introducing broker (lB) member of the NFA, required in order for the company to collect fees from the US-based brokers which utilize its platform.
The NFA noted that ZuluTrade, based in Greece, has a history of regulatory problems. In 2011, the NFA issued a complaint against ZuluTrade for failing to maintain required minimum adjusted net capital and failing to keep required books and records. ZuluTrade settled the case by agreeing to pay a fine of $10,000.
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. ZuluTrade was fined $200,000 in the OFAC action.
The CFTC also took an action in September 2014 against ZuluTrade, charging the firm with failure to supervise its AML program by not implementing its procedures for screening potential account holders to determine if they were from OFAC targeted countries. ZuluTrade settled the CFTC case by agreeing to pay a $150,000 fine and disgorge profits of $80,000.
So what happened this time?
First, the capital shortfall.
At the end of 2014, more than $180,000 of the fines ZuluTrade incurred as a result of the OFAC and CFTC actions listed above remained outstanding. The fines created a capital shortfall at ZuluTrade. To cover the capital shortfall caused by these fines, two of ZuluTrade’s affiliates made three separate capital contributions to ZuluTrade. One of these capital contributions was made on December 31, 2014. The other two capital contributions, which totaled $150,040, were not made until 2015, specifically on January 28 and February 4, 2015. However, ZuluTrade improperly reported these two capital contributions as current assets on its December 31, 2014 statements.
ZuluTrade did file notice with the NFA and the CFTC notifying them that the firm’s adjusted net capital was below the minimum required amount from at least September 29, 2014 through
February 2, 2015.
Second, anti-money laundering issues.
ln June 2015, ZuluTrade had relationships with four forex dealers, two foreign and two located in the United States.
ZuluTrade relied on the 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. (now known as Swissquote) are located in foreign countries, Greece and Switzerland, and are not regulated by NFA or the CFTC.
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, such as a customer engages in extensive, sudden or unexplained wire activity (especially wire transfers involving countries with bank secrecy laws).
While the NFA stated that ZuluTrade did perform 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. As such, according to the NFA ZuluTrade failed to monitor customer accounts for suspicious activity.
Finally, ZuluTrade had never had an independent audit of its AML program performed since it became an lB in October 2011.
ZuluTrade and Leon Yohai have 30 days to issue a written response to the NFA’s complaint. The potential penalties stemming from the complaint are fairly serious. At the conclusion of the proceedings conducted as a result of the complaint, the NFA may impose one or more of the following penalties:
- expulsion or suspension for a specified period from NFA membership;
- bar or suspension for a specified period from association with an NFA Member;
- censure or reprimand;
- monetary fine not to exceed $250,000 for each violation found; and
- order to cease and desist or any other fitting penalty or remedial action not inconsistent with these penalties.
The full details of the NFA’s complaint against ZuluTrade and Leon Yohai can be seen here.