The US National Futures Association (NFA) has issued a serious complaint against NinjaTrader Clearing LLC and its President, Michael Cavanaugh, for significant deficiencies in their anti-money laundering (AML) program as well as failures in supervisory responsibilities. This unsettling development has triggered substantial concerns within the financial industry regarding the firm’s compliance practices and overall oversight.
NinjaTrader’s Background and Growth
NinjaTrader has long held a reputable position within the financial sector, becoming a member of the NFA in April 2001 and a recognized futures commission merchant (FCM) by May 2002. Originally established as York Business Associates LLC, the company was rebranded to NinjaTrader in December 2020 following its acquisition by NinjaTrader Group LLC (Ninja Group). Michael Cavanaugh, an NFA Associate since June 2021, leads the firm as President and stands as its sole associated person (AP).
Throughout the NFA’s comprehensive 2024 examination, NinjaTrader was revealed to have more than $22 million in excess net capital and boasted roughly 85,000 accounts, primarily retail. The firm’s remarkable financial growth was evidenced between August 2021 and May 2022, wherein it amassed over $192 million in customer funds, largely via acquisitions and bulk transfers from other firms. Despite this significant growth, critical deficiencies were identified within NinjaTrader’s AML program, undermining the firm’s compliance posture.
AML Program Deficiencies
When Ninja Group acquired York, it inherited York’s existing AML program as part of the transition. Despite incorporating technology enhancements and expanding its AML team to handle the growing account volume, the 2023 NFA review dated December 31, 2022, indicated that the AML procedures had remained largely unchanged from those initially set by York. At that time, NinjaTrader’s AML team comprised three analysts, two dedicated to account opening and one focused on investigating suspicious activities, all reporting to an AML officer who, in turn, reported directly to Michael Cavanaugh.
A pivotal component of NinjaTrader’s AML initiative involved monitoring foreign accounts to identify those in countries with inadequate AML measures. If an entity or person was found in a prohibited country, the firm was obligated to cease any business engagements immediately. NinjaTrader developed a “Blocked Country List” using sources such as OFAC, the Financial Action Task Force, and the US State Department, and included additional countries for business reasons. However, by February 28, 2023, the NFA discovered that NinjaTrader had opened or maintained over 475 accounts for individuals located in countries on this list, with over 100 of these accounts being opened directly by NinjaTrader and the rest acquired via bulk transfers from other firms post-August 2021.
Supervisory Failures
As president, Michael Cavanaugh bore the crucial responsibility of overseeing NinjaTrader’s activities. The NFA’s rigorous examinations in 2023 and 2024 unveiled notable shortcomings in the firm’s AML program, particularly in the realm of monitoring suspicious activity. The firm’s failure to adequately investigate suspicious deposit activity showcased a glaring supervisory lapse. Additionally, NinjaTrader neglected to effectively review and integrate information from various parts of the company to fully assess account holders’ activities whenever red flag alerts emerged.
The NFA highlighted instances where personnel overlooked or disregarded discrepancies, such as unauthorized trading on another customer’s account, or substantial increases in trading activity by certain customers. These cases were coupled with frequent customer calls that raised questions about their trading knowledge and understanding. As the chief supervisor of NinjaTrader’s AML program since late 2021, Cavanaugh was held accountable for these critical deficiencies, with his direct involvement in bulk transfers and acquisitions of high-risk accounts exacerbating the issue.
Inadequate AML Audits
The US National Futures Association (NFA) has filed a severe complaint against NinjaTrader Clearing LLC and its president, Michael Cavanaugh, citing major deficiencies in their anti-money laundering (AML) program as well as lapses in their supervisory duties. This development has sparked considerable unease within the financial sector, raising questions about the firm’s compliance practices and the integrity of its oversight mechanisms. The NFA’s action suggests that NinjaTrader failed to uphold the stringent regulations designed to prevent money laundering and other illicit financial activities. The deficiencies could potentially expose the firm to severe regulatory penalties, impacting its reputation and operations. This situation underscores the critical importance of rigorous AML protocols and effective supervision to maintain financial integrity and trust. Industry experts are closely monitoring the case to see how NinjaTrader will address these serious allegations and rectify their compliance shortcomings. The financial community is awaiting further details and updates on this matter, which could have broader implications for industry standards and enforcement actions.
