The National Futures Association has filed a complaint against NinjaTrader Clearing and its president Michael Cavanaugh, alleging significant failures in anti-money laundering (AML) controls and suspicious activity monitoring at the Chicago-based futures commission merchant.

NFA Files Complaint Against NinjaTrader over AML Violations, Prison-Linked Trading

The regulatory action targets NinjaTrader's handling of multiple suspicious accounts, including one linked to an imprisoned individual and another involving potential unregistered trading operations. NFA states, "These telephone communications with Individual 2 appear to have occurred while he was in prison."

The firm, which manages approximately 85,000 accounts and maintains over $22 million in excess net capital, allegedly failed to properly investigate numerous red flags despite its rapid growth following several acquisitions.

"During the 2023 exam, NFA reviewed a sample of five alerts on the Daily Red Flag report generated on February 13, 2023 and found the firm failed to conduct enhanced due diligence with respect to two accounts on the report, despite unusual activity involving them," the regulator commented.

NinjaTrader Clearing is a subsidiary of NinjaTrader Group, the company behind a popular retail trading Retail Trading In finance, retail trading refers to individual traders, trading through a broker, or on a platform. This can include novice traders and experienced traders. Trading and investing are divided into two categories, retail and institutional. Institutions include investment banks like JP Morgan or Citibank and global central banks like the US Federal Reserve and the European Central Bank. When we talk about retail trading however, we usually are referring to forex trading, but there are retail trade In finance, retail trading refers to individual traders, trading through a broker, or on a platform. This can include novice traders and experienced traders. Trading and investing are divided into two categories, retail and institutional. Institutions include investment banks like JP Morgan or Citibank and global central banks like the US Federal Reserve and the European Central Bank. When we talk about retail trading however, we usually are referring to forex trading, but there are retail trade Read this Term platform specializing in futures markets. Cavanaugh has served as its President for nearly four years. Two months ago, the company also appointed the former Charles Schwab Director as another C-level executive.

Key NFA’s Allegations

In one notable case, NinjaTrader allegedly failed to properly investigate an account belonging to a 20-year-old who reported income and net worth below $50,000 but managed to deposit $82,000 within months of opening the account.

The account was connected to an individual serving prison time for money laundering, who was recorded placing trades despite explicit instructions prohibiting his involvement.

The complaint highlights systematic deficiencies in NinjaTrader's compliance infrastructure, including:

• Failure to aggregate deposits across multiple accounts for monitoring purposes
• Inadequate review of suspicious activity alerts
• Insufficient investigation of accounts exceeding deposit thresholds
• Failure to screen nearly 61,000 accounts against FinCEN's watchlist

Historical Context

This isn't the first time the firm has faced regulatory scrutiny. Prior to its acquisition Acquisition Acquisition means acquiring or taking possession or the securing of property, services, or abilities. To put it simply, it is the act or process of acquiring or gaining. You can acquire a work of art, you can acquire an ability such as speaking another language, you can acquire a business or shares in a company and you can acquire an accountant's service. For example, you can acquire a new car. In a broad sense, Acquisition can mean the act of taking ownership or possession of something. There Acquisition means acquiring or taking possession or the securing of property, services, or abilities. To put it simply, it is the act or process of acquiring or gaining. You can acquire a work of art, you can acquire an ability such as speaking another language, you can acquire a business or shares in a company and you can acquire an accountant's service. For example, you can acquire a new car. In a broad sense, Acquisition can mean the act of taking ownership or possession of something. There Read this Term by NinjaTrader Group LLC in December 2020, the company's predecessor, York Business Associates LLC (doing business as TransAct) was sanctioned by both the CFTC and NFA for similar supervisory failures. The incident occurred 12 years ago, and the CFTC imposed a fine of just under $200,000 on the company.

„Specifically, the CFTC order finds that from about October 2007 to at least February 2008, TransAct’s employees failed to follow-up sufficiently on “red flags” concerning suspicious activity,” CFTC commented in 2012.

More than a decade later, the CFTC has again imposed a penalty on NinjaTrader, citing alleged mishandling of fraudulent accounts. As part of the settlement, NinjaTrader Clearing agreed to pay a $750,000 civil penalty and $233,425 in restitution to fraud victims.

.@CFTC Orders Illinois Futures Commission Merchant to Pay More Than $980,000 for Supervision Failures: https://t.co/GV2brdqBOW

— CFTC (@CFTC) September 23, 2024

The CFTC reported that the Illinois-based futures commission merchant failed to exercise due diligence in supervising employee actions related to managing suspected fraudulent accounts. Despite a statutory restraining order requiring immediate freezing or restriction of these accounts, the firm reportedly failed to act promptly, leading to further regulatory action.

According to the NFA, NinjaTrader added over $192 million in customer funds between August 2021 and May 2022, primarily through acquisitions and bulk transfers from other firms.