HACK Manager Hits Back at Nasdaq, Escalating Dispute Over ETFBy
A nine-month battle over who owns one of the hottest exchange-traded funds in the U.S. intensified this week when the manager of HACK, a $1.2 billion cyber-security ETF, brought claims against Nasdaq Inc. in Manhattan federal court.
ETF Managers Group, the adviser to the ETFMG Prime Cyber Security ETF, accused Nasdaq of favoring the interests of CIBR, a competing fund for which the exchange also provided an index, over those of HACK, court filings show. It also said Nasdaq breached a wholesaling agreement, among other things, and asked the court to award damages.
It’s a sign that the months-long fight for control of the fund -- and its revenue -- is far from over. Nasdaq, which now owns the index provider that helped develop HACK, sued ETFMG in October, accusing the firm of failing to pay its dues and misappropriating HACK and several other ETFs. ETFMG denied these allegations in a court filing Thursday. PureShares, the fund’s sponsor that does business as PureFunds, also sued ETFMG in May.
“We feel the facts of this case are clear and Nasdaq will vigorously pursue its rights to the profit interests in the PureFunds ETFs,” the exchange said in a statement.
The PureShares case was dismissed without prejudice on Jan. 19, after the company failed to produce supporting documents related to their case. Thomas Harty, a lawyer for PureShares, however, described the decision as procedural and said he expected to submit documents and restart the case within the next few weeks.
All the upheaval seems to be taking its toll on HACK. The fund lost assets in each of the last five months of 2017, although its fortunes seem to have ticked up in January with $18 million flowing in, data compiled by Bloomberg show. Meanwhile, its rival, the First Trust Nasdaq Cybersecurity ETF, which goes by the symbol CIBR, has attracted inflows every month since October 2016, bringing its assets to more than $400 million.
HACK started trading in November 2014 as the PureFunds ISE Cyber Security ETF. Within months it had more than $1 billion in assets and was raking in hundreds of thousands of dollars in profit.
ETFMG took over managing the fund in April 2017, replacing Penserra Capital Management, which had acted as sub-adviser since the fund started. It renamed the ETF in August and, at the same time, shed the Nasdaq index in favor one from Prime Indexes. As part of the reorganization, five other funds, which now have $500 million in combined assets, also got new names and some got new indexes.
The case is Nasdaq Inc. v. Exchange Traded Managers Group LLC, 17-08252, U.S. District Court, Southern District of New York (Manhattan).