01 May, AtoZForex, New York - Zulutrade - once the leader and pioneer of Copy Trading is under the spotlight as NFA issues new Zulutrade complaint for possibly violating some of the requirements such as failing to maintain minimum net capital and failing to implement the firm’s anti-money laundering (AML) program.
While the American Financial markets remain at the top of the global financial markets, NFA remains as one of the strictest regulators in the industry. As the recent NFA complaint submission indicates, the firm has failed to maintain its minimum net capital requirements as well as failing to implement the necessary AML applications. The complaint not only covers the company but also charges Leon Yohai, the founder of ZuluTrade personally with failing to adequately supervise the firm’s employees, agents and operations.
30 days response time
Although the failure to meet the minimum regulatory net deposits took place over a year ago, failure to meet and answer NFA complaint properly and on timely basis would be considered as an admission of the above given mistakes and could end up with ZuluTrade’s expulsion or suspension from NFA membership definitely for short term but possibly forever as well. The good news is that both ZuluTrade and Leon Yohai have 30 days to officially reply to NFA's complaint.
How does ZuluTrade work
ZuluTrade works on classic IB structure. The company provides copy and social trading platform. Those brokers working with ZuluTrade agrees to pay ZuluTrade certain amount of cash back on spread per roundturn lot traded. Thus, the company is registered as an introducing broker (lB) member of the NFA.
3 counts of guiltiness
The first count of the NFA Zulutrade complaint outlines that ZuluTrade has failed to comply with minimum capital requirements.
"At the end of 2014, $180,564 of the fines ZuluTrade incurred as a result of the OFAC and CFTC actions remained outstanding. To cover the capital shortfall caused by these liabilities, two of Zulu's affiliates made three separate capital contributions to Zulu. One of these capital contributions was made on December 31,2014 and was considered a current asset. 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 unaudited statement."
The second count of the NFA Zulutrade complaint is about the failure of the company implement an AML (anti money laundering) program. At the core of the second count is the fact that ZuluTrade did not carry out KYC activities for its clients as the company relied on its broker partners' KYC activities. All good but! Two of the ZuluTrade broker partners were not NFA regulated brokers, thus did not fall under NFA jurisdiction which was therefore considered to be unacceptable.
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
The third count of the NFA Zulutrade complaint is about the failure of adequately supervising the firm’s employees, agents and operations.
ZuluTrade, as an NFA Member, must ensure that it complies with NFA Bylaw 1101 by obtaining information necessary to determine if a customer is required to be registered or subject to a CFTC exemption. However, ZuluTrade represented to NFA that, because of its business model, it (ZuluTrade) does not monitor customer accounts for compliance with NFA Bylaw 1101, and instead places reliance on its Forex dealers to perform such functions.
Potential penalties, disqualification and ineligibility
ZuluTrade and Leon Yohai have 30 days to issue a written response to the NFA’s complaint, while the complications of the the complaint include the following:
(a) expulsion or suspension for a specified period from NFA membership;
(b) bar or suspension for a specified period from association with an NFA Member;
(c) censure or reprimand;
(d) monetary fine not to exceed $250,000 for each violation found;
(e) order to cease and desist or any other fitting penalty or remedial action not inconsistent with these penalties.