NinjaTrader Clearing, LLC (NTC) has been hit with a substantial $983,425 penalty by the Commodity Futures Trading Commission (CFTC) due to the company’s failure to properly supervise its employees in handling accounts tied to fraudulent activities. As part of the settlement, NinjaTrader will pay a $750,000 civil fine and an additional $233,425 in restitution to compensate victims of the fraud.
Mishandling of Fraudulent Accounts
According to the CFTC’s findings, NinjaTrader, a futures commission merchant based in Illinois, failed to exercise appropriate oversight when it came to managing accounts that were suspected of being fraudulent. The CFTC claims that NinjaTrader did not act swiftly in response to a statutory restraining order (SRO), which required the firm to freeze or restrict access to these accounts immediately. Instead, the firm delayed its actions, allowing the fraudulent accounts to remain active for a period of time.
As a result of this oversight, the open positions in these fraudulent accounts saw a loss of more than $200,000 in value. This compounded the financial damage that was already being caused by the fraudulent schemes. The regulator emphasized that NinjaTrader’s failure to develop and implement sufficient policies and procedures for managing these kinds of urgent court orders led to significant harm.
Failure to Implement Proper Protocols
The CFTC further detailed that from late 2020 onwards, NinjaTrader did not have proper protocols in place for handling court orders related to flagged accounts. Despite receiving the restraining order in January 2022, the firm reportedly allowed the suspicious accounts to continue trading, contributing to the financial losses.
The commission’s report highlights that NinjaTrader’s policies were insufficient to handle such emergencies, which ultimately led to the delay in action against the fraudulent accounts. By failing to freeze the accounts immediately, NinjaTrader’s employees did not mitigate the escalating financial risks that these accounts posed.
Civil Penalty and Restitution
As part of the CFTC’s settlement, NinjaTrader Clearing is required to pay a civil monetary penalty of $750,000, in addition to $233,425 in restitution to victims. These restitution funds will be distributed to those impacted by the fraudulent accounts to compensate for their losses.
This fine is just the latest in a series of penalties levied by the CFTC in its ongoing efforts to clamp down on regulatory breaches in the financial services industry. Last month, the regulator fined Nasdaq Futures $22 million for failing to properly disclose a volume-based payment component in its incentive programs. Nasdaq Futures operated as a designated contract market (DCM) focusing on energy futures contracts between July 2015 and July 2018. The CFTC found that Nasdaq Futures had misled regulators by providing false information when questioned about its incentive programs.
Lessons Learned for Financial Institutions
This case underscores the critical importance of having robust internal policies in place to manage fraudulent activities, especially in the context of handling court orders and urgent regulatory interventions. NinjaTrader’s failure to act promptly not only led to significant financial losses but also resulted in severe penalties for the firm.
Financial institutions and firms in the futures and trading industry must ensure that their employees are properly trained and equipped with the tools to respond effectively to emergencies. Additionally, maintaining clear protocols for managing fraudulent accounts is essential to protect both the firm and its clients from potential harm.
By addressing these challenges head-on, firms can avoid the pitfalls that led to NinjaTrader’s regulatory troubles and continue to operate in a compliant and transparent manner within the financial services space.