SEC Charges New Jersey-Based ETF Manager for Fraudulent Conduct and Bars Founder
The Securities and Exchange Commission today charged Samuel Masucci and entities he founded and controls with disadvantaging an exchange traded fund (ETF) they managed and misleading the ETF’s trustees to obtain $20 million in rescue financing to avoid a possible bankruptcy. Masucci and the entities agreed to pay a combined $4.4 million to settle the charges.
The SEC’s order finds that, in 2019, in exchange for $20 million in financing and other services, Masucci agreed to keep the ETF’s lucrative securities-lending business at the broker-dealer that provided the massive influx of financing despite offers with better terms from other securities lenders that could have benefited investors. Masucci then knowingly failed to disclose this joint arrangement between him and his firm, the fund, and the broker-dealer to the fund’s Independent Trustees, instead telling them that the fund had no other viable options.
“Investment advisers cannot mislead clients or leverage client assets for their own benefit,” said Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Our action today demonstrates the SEC’s continued commitment to holding firms and individuals accountable.”
The SEC’s order finds that Masucci and ETF Managers Group LLC (ETFMG), an SEC-registered investment adviser based in Summit, New Jersey, violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and that Masucci, ETFMG, and its parent company, Exchange Traded Managers Group LLC, violated Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 thereunder. Without admitting or denying the SEC’s findings, Masucci agreed to a cease-and-desist order, to pay a $400,000 penalty, and to an associational bar under the Advisers Act and a prohibition under the Investment Company Act with a right to reapply after three years. ETFMG and the parent company agreed to censures, to a cease-and-desist order, and to pay, jointly and severally, a civil penalty of $4 million.
The SEC's investigation was conducted by David Neuman of the Asset Management Unit with assistance from Fernando Campoamor, John Farinacci, Matthew Koop, and Patrick McCluskey, and supervised by David Becker, Melissa Armstrong, Mr. Schuster, and Andrew Dean.