ETFMG, Masucci to Pay $4.4M to Settle SEC Probe

ETF Managers Group founder Sam Masucci and his firm have been charged by the SEC with misleading trustees to secure $20 million in financing in order to avoid a potential bankruptcy.  

Masucci, ETFMG and its parent company agreed to pay a combined $4.4 million to settle the charges, according to a Securities and Exchange Commission order Tuesday.  

While neither admitting nor denying the findings, Masucci paid a $400,000 penalty, agreed to a cease-and-desist order, and agreed to a bar under the Advisers Act and a ban under the Investment Company Act. He can reapply in three years, according to the regulator. 

“After incurring approximately $10 million in legal fees, and faced with the daunting costs of challenging the SEC in court, the company and Mr. Masucci, without admitting or denying the SEC’s allegations, consented to the SEC’s entry of findings,” Masucci and his firm said in a statement Tuesday. 

ETFMG first disclosed Masucci’s resignation July 14 in an SEC filing. The document revealed the SEC investigation was related to the ETFMG Alternative Harvest ETF (MJ) and its participation in the securities lending program administered by the fund’s prior custodian. 

The SEC’s probe found that Mascucci disadvantaged investors by agreeing to a deal with the fund’s securities-lending with a broker that provided the firm with $20 million to possibly prevent bankruptcy, even though there were better terms from other brokers that would have benefited investors, according to the regulator.  

“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 in a press release, adding that the action shows the SEC is committed to holding both firms and individuals accountable.  

On June 12, the firm announced it was selling off all of its 17 ETFs to Amplify ETFs. An ETFMG spokesperson confirmed that the firm is shutting down its ETF shop. 

The charges are not Masucci’s first involvement in legal disputes. In 2019, he and his firm agreed to pay $80 million to Nasdaq for breach of contract over the ETFMG Prime Cyber Security ETF (HACK). 

Contact Lucy Brewster at [email protected]