Enforcement

SEC Charges Samuel Masucci for Misleading ETF and Obtaining Rescue Financing

Introduction

On August 1, 2023, the Securities and Exchange Commission (SEC) brought charges against Samuel Masucci and entities under his control for allegedly disadvantaging an exchange-traded fund (ETF) they managed and misleading the ETF’s trustees to secure $20 million in rescue financing, thereby avoiding potential bankruptcy. As a result of the charges, Masucci and the involved entities have agreed to settle the matter by paying a combined total of $4.4 million.

Background

In 2019, Samuel Masucci agreed to a deal that provided his ETF with $20 million in financing and other services. However, the deal came with a stipulation: Masucci was required to maintain the ETF’s securities-lending business at the broker-dealer responsible for the financing, despite receiving offers from other securities lenders that may have been more favorable for the investors. Crucially, Masucci did not disclose this arrangement to the fund’s Independent Trustees. Instead, he falsely informed them that the fund had no other viable options.

 The SEC’s Findings

The SEC’s investigation revealed that Samuel Masucci and ETF Managers Group LLC (ETFMG), a registered investment adviser based in 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 have violated Section 17(d) of the Investment Company Act of 1940 and Rule 17d-1 thereunder.

Misleading Clients and Exploiting Assets

Corey Schuster, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, emphasized that investment advisers have a responsibility not to mislead their clients or utilize client assets for personal gain. The SEC’s action against Masucci and the involved entities reaffirms the commission’s commitment to holding firms and individuals accountable for their actions.

Penalties and Settlement

In light of the SEC’s findings, Samuel Masucci agreed to a cease-and-desist order, a $400,000 penalty, and an associational bar under the Advisers Act, along with a prohibition under the Investment Company Act. However, he retains the right to reapply after a three-year period. On the other hand, ETFMG and the parent company will face censures, a cease-and-desist order, and a joint and several civil penalties amounting to $4 million.

Conclusion

The SEC’s charges against Samuel Masucci and the entities he controlled underscore the importance of transparency and honesty in the investment industry. Investment advisers must act in their clients’ best interests and refrain from exploiting client assets for personal gain. The settlement serves as a warning to all financial professionals that regulatory bodies like the SEC will take firm action against any misconduct.

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Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | mja@sallahlaw.com | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.

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