# ETFMG FINANCIAL LLC X-17A-5 (2022-03-01) — Broker-dealer annual report

- Company: ETFMG FINANCIAL LLC
- Form: X-17A-5
- Filed: 2022-03-01
- Period: 2021-12-31
- Accession: 0001675798-22-000001
- CIK: 1675798
- File #: 8-69792
- Type: Broker-dealer
- Material weakness: No
- Auditor: WithumSmith&Brown, PC
- Auditor location: Princeton, NJ
- Contact: Sam Masucci
- Phone: 908-897-0510
- Email: sam@etfing.com
- Website: etfing.com
- Signed by: Sam Masucci (CEO)

Original filing: https://www.sec.gov/Archives/edgar/data/1675798/000167579822000001/ETFMGPublic21.pdf

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### STATEMENT OF FINANCIAL CONDITION AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

December 31, 2021

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| UNITED STATES                      |  |  |  |  |  |
|------------------------------------|--|--|--|--|--|
| SECURITIES AND EXCHANGE COMMISSION |  |  |  |  |  |
| Washington, D.C, 20549             |  |  |  |  |  |

# **ANNUAL REPORTS FORM X-17A-5 PART Ill**

| OM B Number: 3235-0123   |  |
|--------------------------|--|
| EKp]res: Oct. 31, 2023   |  |
| Estimated average burden |  |
| hours per response: 12   |  |
| SEC FILE NUMBER          |  |

8-69792

**FACING PAGE** 

**Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934** 

| FILING FOR THE PERIOD BEGINNING                                           | ___<br>__<br>O_l/_0_1/_2_1                                 | AND ENDING __  | ___<br>_<br>1_21_3_1/_2_1               |
|---------------------------------------------------------------------------|------------------------------------------------------------|----------------|-----------------------------------------|
|                                                                           | MM/DD/VY                                                   |                | MM/DD('(V                               |
|                                                                           | A. REGISTRANT IDENTIFICATION                               |                |                                         |
| NAME OF FIRM: __ E_TFM __                                                 | G_F_in_an_c_ial_L_L_C                                      |                | _________________                       |
| TYPE OF REGISTRANT (check all applicable boxes):                          |                                                            |                |                                         |
| ~ Broker-dealer                                                           | D Security-based swap dealer                               |                | □ Major security-based swap participant |
| □ Check here If respondent is also an OTC derivatives dealer              |                                                            |                |                                         |
| ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.)       |                                                            |                |                                         |
| 30 Maple Street, #2                                                       |                                                            |                |                                         |
|                                                                           | (No. and Street)                                           |                |                                         |
| Summit                                                                    | NJ                                                         |                | 07901                                   |
| (City)                                                                    | (State)                                                    |                | (Zip Code)                              |
| PERSON TO CONTACT WITH REGARD TO THIS FILING                              |                                                            |                |                                         |
| Sam Masucci                                                               | 908-897-0510                                               | sam@etfing.com |                                         |
| (Name)                                                                    | (Area Code - Telephone Number)                             |                | (Email Address)                         |
|                                                                           | B. ACCOUNTANT IDENTIFICATION                               |                |                                         |
| INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained In this filing* |                                                            |                |                                         |
|                                                                           |                                                            |                |                                         |
| WithumSmith+Brown, PC                                                     |                                                            |                |                                         |
|                                                                           | (Name - If Individual, state last, first, and mlddle name) |                |                                         |
| 506 Carnegie Center, Suite 400                                            | Princeton                                                  |                | NJ<br>08540                             |
| (Address)                                                                 | (City)                                                     |                | (State)<br>(Zip Code)                   |
|                                                                           |                                                            |                |                                         |
| T"  "'''"""""                                                             | PCAOB)IW """'"'' FOR OFFICIAL USE ONLY                     |                |                                         |
|                                                                           |                                                            |                |                                         |

• Clalms for exemption from the requirementthatthe annual reports be covered by the reports of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption, See 17 CFR 240.17a-5(e)(l)(il), If applicable.

Persons who are to respond to the collectlon of Information contained In this form are not required to respond unless the form dlsplays a currently valid 0MB control number.

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#### **OATH OR AFFIRMATION**

| Sam Masucci<br>1,                                                                         | swear (or affirm) that, to the best of my knowledge and belief, the                       |
|-------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|
| financial report pertaining to the firm of                                                | ETFMG Financial LLC<br>as of                                                              |
| 1<br>December 31                                                                          | • 2021 • Is true and correct. I further swear (or affirm) that neither the com~Y:Jlel'any |
| '' · pa,tner>)fflcer, director, or equivalent person, as the case may be, has any proprie | inter<br>in any accou<br>assified solely                                                  |
| · ii.ii that of a customer.                                                               |                                                                                           |

#### This **filing•• contains (check all applicable boxes):**

- IXI (a) Statement of financial condition.
- ~ (b) Notes to consolldated statement offlnanclal condition.
- □ (c) Statement of Income (loss) or, If there is other comprehensive Income In the period(s) presented, a statement of comprehensive Income (as defined in§ 210.1-02 of Regulation S-X).
- □ (d) Statement of cash flows.
- □ (e) Statement of changes in stockholders' or partners' or sole proprietor's equity.
- D (f) Statement of changes In liabilities subordinated to claims of creditors.
- D (g) Notes to consolidated financial statements.
- □ (h) Computation of net capital under 17 CFR 240.15c3-l or 17 CFR 240.lSa-1, as applicable.
- □ (I) Computation of tanglble net worth under 17 CFR 240.lSa-2.
- D 0) Computation for determination of customer **reserve** requirements pursuant to Exhibit A to 17 CFR 240.15c3-3.
- □ (kl Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.1Sc3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable.
- □ (I) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3.
- D (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3.
- D (n) Information relatlng to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable.
- D (o) Reconclllatlons, Including appropriate explanatlons, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as appllcable, and the reserve requirements under 17 CFR 240.1Sc3-3 or 17 CFR 240.18a-4, as applicable, If material differences exist, or a statement that no material differences exist.
- D (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition.
- f9 (q) Oath or affirmation in accordance with 17 CFR 240.17a-S, 17 CFR 240.17a-12, or 17 CFR 240.18a-7, as applicable.
- □ (r) Compllance report In accordance with 17 CFR 240.17a-5 or 17 CFR 240.lSa-7, as applicable.
- □ (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- lxl (t) Independent publ!c accountant's report based on an examination of the statement of financial condition.
- □ (u) Independent public accountant's report based on an examination of the flnanclal report or financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable.
- D (v) independent public accountant's report based on an examination of certain statements In the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as appllcable.
- D (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-S or 17 CFR 240.18a-7, as applicable.
- D (x) Supplemental reports on applying agreed-upon procedures, In accordance with 17 CFR 240.1Sc3-1e or 17 CFR 240.17a-12, as applicable.
- D (y) Report describing any material Inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material Inadequacies exist, under 17 CFR 240.17a-12(k). □ (z) Other: \_ \_ \_ \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_
- 

<sup>..</sup> To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-S(e}(3) or 17 CFR 240.18a-7(d}(2), as applicable.

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## TABLE OF CONTENTS

|                                                         | Page No. |  |
|---------------------------------------------------------|----------|--|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |          |  |
| FINANCIAL STATEMENT                                     |          |  |
| Statement of Financial Condition                        | 2        |  |
| Notes to Financial Statement                            | 3 - 8    |  |

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![](_page_4_Picture_0.jpeg)

#### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Management and Member of ETFMG Financial LLC

#### Opinion on the Financial Statement

We have audited the accompanying statement of financial condition of ETFMG Financial LLC (the "Company") as of December 31, 2021, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

#### Legal Matters

As described in Note 1, the Parent of the Company is a party to a legal matter, the outcome of which may have an adverse effect on the Company's ability to continue as a going concern. Our opinion is not modified with respect to this matter.

#### Basis for Opinion

This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company's auditor since 2017.

February 24, 2022

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# STATEMENT OF FINANCIAL CONDITION December 31, 2021

# ASSETS

| Cash                                  | ಲ್ಲಿ ಮಾ | 89,869  |
|---------------------------------------|---------|---------|
| Accounts receivable - related parties |         | 88,498  |
| Prepaid expenses                      |         | 31,535  |
|                                       | ಕಾ      | 209,902 |
| LIABILITIES AND MEMBER'S EQUITY       |         |         |
| Accounts payable and accrued expenses | ea      | 5,594   |
| Member's equity                       |         | 204,308 |
|                                       | ea      | 209,902 |

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## NOTES TO FINANCIAL STATEMENT December 31, 2021 (See Report of Independent Registered Public Accounting Firm)

#### Organization and nature of business Note 1

ETFMG Financial LLC (the "Company") was formed on June 11, 2015 and is a Delaware limited liability company. The Company is a wholly-owned subsidiary of Exchange Traded Managers Group LLC (the "Parent"). The Company provides statutory distribution services for exchange traded funds sponsored by the Parent, in accordance with the membership agreement with the Financial Industry Regulatory Authority ("FINRA"). The Company is a registered broker under the Securities Exchange Act of 1934 as of February 27, 2017 and is a member of FINRA and the Securities Investor Protection Corporation ("SIPC").

#### Legal matters

The Parent, and certain other affiliates of the Company, including ETF Managers Group, LLC (the "Adviser") were defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. ("Nasdaq") captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252 (the "New York Action"). This action asserted claims for breach of contract, conversion and certain other claims based on disputes arising out of contractual relationships with the Adviser relating to certain series of the Trust. The matter was the subject of a bench trial in May 2019, and on December 20, 2019, the Court issued an Opinion and Order awarding compensatory damages to Plaintiff in the amount of \$78,403,172.36, plus prejudgment interest (the "Judgment"). In its decision, the Court in the New York Action stated that its damages award, which gave rise to the Judgment, "includes the share of profits to which Nasdaq's venture partner PureShares was entitled[.]"

ETFMG filed a Notice of Appeal from the Judgment in the United States Court of Appeals for the Second Circuit on January 19, 2020, Docket No. 20-300. On October 28, 2021, Nasdaq and ETFMG entered into a Judgment Payment Agreement, which settled the matter and satisfied the Judgment. On November 1, 2021, Nasdaq recorded a Satisfaction of Judgment with the United States District Court for the Southern District of New York reflecting that the Judgment was paid in full, and ETFMG withdrew its appeal of the Judgment with prejudice before the United States Court of Appeals for the Second Circuit.

The Trust, the Adviser, and certain officers and affiliated persons of the Adviser have been named as defendants in an action filed December 21, 2021, in the Superior Court of New Jersey, Union County, captioned PureShares, LLC, d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. UNN-C-152-21. This action asserts breach of contract and tort claims arising from the same facts and circumstances, and relates to the same series of the Trust, that gave rise to the New York Action. The new action seeks damages in unspecified amounts and injunctive relief. The defendants intend to vigorously defend themselves in this new action and believe that Plaintiffs' claims overlap with, and are barred by, those claims previously asserted by Nasdaq (and resolved on PureShares' behalf) in the New York Action that resulted in the Judgment, which has been satisfied.

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{10}------------------------------------------------

# NOTES TO FINANCIAL STATEMENT (CONTINUED)

December 31, 2021

### (See Report of Independent Registered Public Accounting Firm)

#### Note 5 Concentrations

The Company maintains its cash at financial institutions in bank deposits, which may exceed federally-insured limits. The Company has not experienced any losses in such accounts and the Company believes it is not exposed to any significant risk with respect to cash.

During the year ended December 31, 2021, the Company earned 100% of its revenue from ETF Managers Capital and ETF Managers Group, affiliated entities.

#### Note 6 Exemption from Rule 15c3-3

The Company amended its membership agreement with FINRA on April 8, 2021 and will not claim exemption from the provisions of Rule 15c3-3 of the SEC, in reliance on footnote 74 to SEC Release 34-70073.

#### Note 7 Related party transactions

The Company's financial statements contain a substantial number of related party transactions with the Parent and affiliates. Therefore, the Company's financial statements may not be representative of the conditions that would have existed or the results of operations if the Company had been operated as an unaffiliated entity.

The Company entered into an expense sharing agreement with the Parent, in which the Parent provides office, compensation and additional services in exchange for reimbursement of a specified percentage of such expenses. For the year ended December 31, 2021, the Company incurred expenses of \$920,659 related to this agreement, which includes employee compensation, legal fees, rent and other office expenses paid on the Company's behalf. At December 31, 2021, the Company owed its Parent \$0 for services related to this expense sharing agreement.

The Company has distribution agreements with ETF Managers Capital and ETF Managers Group, affiliate entities. For the year ended December 31, 2021, the Company earned revenues of \$17,429 from ETF Managers Capital and \$1,092,048 from ETF Managers Group. As of December 31, 2021, \$87,205 was due from ETF Managers Group and \$1,293 was due from ETF Managers Capital which are included in accounts receivable - related parties on the statement of financial condition.

#### Note 8 Commitments and contingencies

The Company does not have any commitments, guarantees or contingencies including arbitration or other litigation claims that may result in a loss or future obligation. The Company is not aware of any threats or other circumstances that may lead to the assertion of a claim at a future date.

{11}------------------------------------------------

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