On June 1, 2020 the National Futures Association (“NFA”) permanently barred Hong Kong-based commodity pool operator Bainbridge Asia Limited (“BAL” or the “Firm”) and its sole principal and associated person, Wai Man Yip, from membership and acting as a principal of an NFA member on the basis of a complaint issued by the NFA’s Business Conduct Committee (“BCC”).
The complaint alleged that BAL and Mr. Yip failed to comply with the NFA’s request for documents during an NFA examination and Mr. Yip did not make himself available for questioning.
Background on the NFA’s Complaint and Decision
In January 2020, the NFA began an investigation into inconsistencies between information that was provided to the NFA by BAL and Mr. Yip and the Firm’s website. The NFA found that BAL was advertising services as a Foreign Exchange (“Forex”) dealer and an online trading platform that the Firm used.
Additionally, the NFA found that there were inconsistencies with respect to the addresses listed on the Firm’s website and filings with the NFA, stating that the Firm had office locations in both Hong Kong and Queens, New York, as well as representations that the NFA was a partner of BAL.
Moreover, BAL’s NFA filings indicated that the Firm operated five commodity pools but did not list the pools as part of the filing, thereby triggering the NFA’s risk alert system.
Due to the inaccurate information on BAL’s website, the NFA required that the site be deactivated, which it was towards the end of December 2019.
Upon the commencement of the NFA’s examination, the exam team arrived at the Firm’s office location in Queens, only to discover that it was a PO Box.
The NFA also found that BAL had launched an additional website, this time with a U.S. based web-address that contained the same information from the deactivated website.
Towards the end of January, the NFA conducted a teleconference with Mr. Yip. During the teleconference Mr. Yip made assertions that the Firm was not operating commodity pools but rather soliciting and marketing for the pools on behalf of third-party asset managers.
Furthermore, Mr. Yip denied conducting any Forex business and agreed to have his website taken down immediately. The website, however, continued to remain active.
Prior to the call with Mr. Yip, the NFA had sent a document request letter along with requests for information to Futures Commission Merchants (“FCMs”) and Forex Dealer Members (“FDM”) to verify whether the FCMs or FDMs worked with BAL and Mr. Yip; however, none of the FCMs and FDMs could verify working with BAL or Mr. Yip.
After the NFA granted an extension to Mr. Yip to respond to the document requests, the NFA was unable to contact Mr. Yip after subsequent calls were made and letters were sent apprising Mr. Yip that his failure to respond to the NFA’s request would result in a violation of NFA Compliance Rule 2-5, which requires members to “cooperate promptly and fully with NFA in any NFA investigation, inquiry, audit, examination or proceeding regarding compliance with NFA requirements or any NFA disciplinary or arbitration proceeding.” 
Subsequently, on March 6, 2020, the BCC delivered a complaint outlining the violation of NFA Rule 2-5, and after repeated attempts to remind Mr. Yip of his obligation to respond to the complaint, the BCC cited a failure to respond to the complaint under Compliance Rule 3-6(b) resulting in the decision to permanently bar BAL and Mr. Yip from NFA membership.
What Should I Consider When Responding to NFA Exam Requests?
NFA members need to ensure that their responses to NFA examiners are done in a timely and efficient manner. To ensure that document requests can be adequately fulfilled, NFA members need to ensure that their books and records are up-to-date and easily accessible.
Additionally, compliance staff should receive training on how to respond to NFA requests for documentation as well as how to respond to staff requests for interviews.
Lastly, NFA members should ensure that their policies and procedures (P&Ps) clearly prescribe how to respond to requests for examination. Ultimately, a firm’s Chief Compliance Officer is responsible for oversight of examination requests.
Should you or your firm have questions regarding how to respond to NFA requests for examination, to ensure that your books and records are up-to-date, and that your compliance staff is adequately trained for NFA exams, please contact us at (619) 278-0020 to schedule a consultation. Our legal and compliance experts are standing by to help you.