SEC Charges New Jersey-Based ETF Manager for Fraudulent Conduct and Bars Founder

The Securities and Exchange Commission (SEC) has taken action against Samuel Masucci and the entities under his control, which he founded, on charges related to their management of an exchange-traded fund (ETF). The charges involve actions that disadvantaged the ETF and involved misleading the ETF’s trustees in order to secure $20 million in rescue financing, preventing a potential bankruptcy. As part of the settlement, Masucci and the entities have collectively agreed to pay a total of $4.4 million.

The SEC’s order reveals that in 2019, Samuel Masucci agreed to certain terms, including receiving $20 million in financing and other services, in exchange for keeping the ETF’s profitable securities-lending business with a particular broker-dealer. Despite receiving offers with more favorable terms from other securities lenders, which could have benefited the ETF’s investors, Masucci deliberately chose to not disclose this arrangement to the fund’s Independent Trustees. Instead, he conveyed to them that the fund had no other viable alternatives.

Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, emphasized, “Investment advisers are obligated to act in the best interest of their clients and refrain from utilizing client assets for their personal gain. This enforcement action underscores the SEC’s unwavering commitment to holding individuals and firms accountable.”

The SEC’s order establishes that both Samuel Masucci and ETF Managers Group LLC (ETFMG), a registered investment adviser operating out of Summit, New Jersey, violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Additionally, Masucci, ETFMG, and its parent company, Exchange Traded Managers Group LLC, were found to be in violation of Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 under that Act.

Samuel Masucci, without admitting or denying the SEC’s findings, has agreed to adhere to a cease-and-desist order, pay a penalty of $400,000, and face an associational bar under the Advisers Act. He will also be subject to a prohibition under the Investment Company Act, with an option to reapply after a period of three years. Both ETFMG and its parent company have accepted censures and will comply with a cease-and-desist order. Additionally, they will jointly and severally pay a civil penalty amounting to $4 million.

This enforcement action underscores the SEC’s dedication to maintaining accountability within the financial industry and ensuring that investment advisers act in the best interests of their clients.