The US National Futures Association (NFA) has announced that it has issued a Complaint against NinjaTrader Clearing LLC and its longtime President Michael Cavanaugh. The Complaint charges NinjaTrader with failing to implement an adequate anti-money laundering (AML) program, and charges both NinjaTrader and Cavanaugh with failing to supervise.
NinjaTrader background
NinjaTrader has been an NFA Member since April 2001 and a futures commission merchant (FCM) since May 2002. The firm is located in Chicago, Illinois. NinjaTrader was previously known as York Business Associates LLC and began operating under its current name in December 2020, after NinjaTrader Group LLC (Ninja Group) acquired York. Michael Cavanaugh has been an NFA Associate since June 2021. Cavanaugh also is the president of NinjaTrader and currently is the sole AP (associared person) of the firm.
At the time of NFA’s 2024 examination, NinjaTrader had over $22 million in excess net capital and approximately 85,000 accounts, most of which were individual accounts that could be characterized as retail. Between August 2021 and May 2022, NinjaTrader added over $192 million in customer funds, mainly from accounts the firm acquired through acquisitions and bulk transfer from other firms.
NinjaTrader AML systems
The NFA stated that when Ninja Group acquired York in 2020, NinjaTrader adopted the AML program that York had been utilizing. As part of its 2023 exam, NFA reviewed NinjaTrader’s written AML program dated December 31, 2022 and noted the procedures were largely the same as York’s. However, the firm had added technology enhancements and AML team members to help deal with the higher volume of accounts the firm had acquired since 2021.
At the time of the 2023 exam, NinjaTrader’s AML team consisted of three AML analysts who reported to the AML officer who, in turn, reported to Cavanaugh. Two of the AML analysts focused on account opening, and the third AML analyst focused on investigating suspicious account activity.
Accounts in Blocked Countries
As part of its foreign accounts monitoring, NinjaTrader’s AML program required the firm to identify accounts located in certain countries or regions identified as having inadequate AML measures. NinjaTrader’s AML program stated that if an entity or person was located in a prohibited country, the firm was to immediately cease doing business with that entity or person.
To comply with these AML program requirements, the firm utilized a “Blocked Country List.” NinjaTrader had created the Blocked Country List to identify countries of concern from multiple sources, including OFAC, the Financial Action Task Force and the US State Department, and added other countries the firm had identified for business reasons.
Nevertheless, NFA found that, as of February 28, 2023, NinjaTrader had opened or maintained more than 475 accounts for customers located in countries the firm had added to its Blocked Country List.
NinjaTrader had apparently opened over 100 of the accounts itself and acquired the remaining accounts through the bulk transfer of accounts from other Member firms since August 2021, even though the account holders were located in countries on the Blocked Country List.
Michael Cavanaugh supervision
Michael Cavanaugh was required to diligently exercise his supervisory duties in the conduct of his commodity interest activities on behalf of NinjaTrader. The NFA’s 2023 and 2024 exams found serious AML program deficiencies at NinjaTrader. The most serious finding related to the firm’s inadequate monitoring of suspicious activity, which involved a failure to ensure that suspicious deposit activity was properly investigated. This shortcoming reflects NinjaTrader’s failure to supervise.
Moreover, NinjaTrader failed to review and evaluate information received across different areas of the firm to make a complete assessment of an account holder’s activities when alerts appeared on the Daily Red Flag report.
Citing some examples, the NFA said that NinjaTrader personnel overlooked or ignored how one individual traded a different customer’s account, even though the customer indicated that the individual in question was not authorized to trade the account.
Similarly, firm personnel overlooked or ignored the dramatic increase in a certain customer’s trading activity starting in May 2023, which trading coincided with her daily calls to NinjaTrader and raised questions about her knowledge and understanding of trading, margin and other issues.
The NFA added that the failure to supervise also extends to Cavanaugh, as the president of NinjaTrader and the individual at the firm who has directly supervised NinjaTrader’s AML program since late 2021, when the AML officer began reporting directly to him.
In his oversight role, Cavanaugh directly approved the AML program and any changes to it or the underlying procedures. In addition, the AML officer indicated to NFA that he and Cavanaugh regularly communicated about the handling of “red flag” alerts, including during periodic calls and in weekly meetings. Cavanaugh indicated to NFA that he was deeply involved with the bulk transfers and led the firm’s acquisition of additional accounts. He also told NFA that he was aware the firm intended to take accounts from high-risk countries and agreed to accept them, in part, because the firm relied on the previous FCM’s AML program.
However, having a written AML program is only one aspect of the firm’s obligations under NFA Requirements. NinjaTrader—and Cavanaugh, as the individual with ultimate supervisory oversight of the firm and the AML program—must also implement the AML program adequately.
The NFA said that Michael Cavanaugh was also aware that the firm’s written AML program did not align with its practices involving the firm’s Blocked Country List, but failed to take timely action to ensure NinjaTrader modified its written AML program to be consistent with the firm’s current practices.
Another troubling aspect of NinjaTrader’s and Cavanaugh’s lack of supervision related to the previous independent AML auditor retained to test the effectiveness of the firm’s AML program (i.e., annual AML audit). In both 2021 and 2022, the AML auditor had no findings in connection with the firm’s annual AML audit. However, according to NinjaTrader’s AML officer, the AML audits were a “rubber stamp.”
Similarly, Cavanaugh considered the AML auditor’s report to be a “form letter.” It was not until NFA issued its 2023 exam findings that NinjaTrader changed its independent AML auditor. Nevertheless, the two individuals at NinjaTrader with responsibility for ensuring the effectiveness of the annual AML audit ignored the independent auditor’s inadequate performance for at least two years. By reason of the foregoing acts and omissions, NinjaTrader and Cavanaugh are charged with violations of NFA Compliance Rule 2-9(a).
The NFA said that NinjaTrader and Michael Cavanaugh must file a written Answer to the Complaint with the NFA within thirty days of the date of the Complaint, which is dated November 18, 2024.
New NinjaTrader President
Interestingly, NinjaTrader made an announcement this summer stating that Tobin McDaniel, former Head of SoFi Invest, has joined the company as President, but made no mention of Michael Cavanaugh in the press release. Michael Cavanaugh’s LinkedIn profile still shows him being President of NinjaTrader.
The full NFA Complaint against NinjaTrader and Michael Cavanaugh can be seen here (pdf).
