In re JOSEPH MASELLA

 
 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No.  6303 / May 5, 2023 
 
INVESTMENT COMPANY ACT OF 1940 
Release No.  34908 / May 5, 2023 
 
ADMINISTRATIVE PROCEEDING 
File No.  3-21406 
 
In the Matter of 
 
JOSEPH MASELLA, 
 
Respondent. 
 
 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTION 203(f) OF THE 
INVESTMENT ADVISERS ACT OF 1940, 
AND SECTIONS 9(b) AND 9(f) OF THE 
INVESTMENT COMPANY ACT OF 1940, 
MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and 
Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) 
against Joseph Masella (“Masella” or “Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 
of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, and without admitting or denying the findings herein, except as 
to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
admitted, and except as provided herein in Section V, Respondent consents to the entry of this 
Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 203(f) of 
the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act 
of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order  
(“Order”), as set forth below. 

 
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III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
  
Summary 
 
1. These proceedings arise from violations by the NYSA Fund (the “Fund”), a 
formerly registered investment company, and Masella, formerly an interested trustee on the Fund’s 
board of trustees, relating to the Fund’s failure to comply with the liquidity risk management 
practices set forth in Rule 22e-4 under the Investment Company Act (the “Liquidity Rule”). From 
June 2019 to June 2020, the Fund violated the Liquidity Rule and Rule 30b1-10 under the 
Investment Company Act because it classified a large, restricted private placement investment it 
held as “less liquid” rather than “illiquid.” Although more than 15% of its net assets were in 
illiquid investments, it failed to comply with applicable reporting and filing requirements. Pinnacle 
Advisors, LLC (“Pinnacle”), the Fund’s adviser and designated administrator of its liquidity risk 
management program (“LRMP”), and its principals were responsible for monitoring the liquidity 
of the Fund’s investments, classifying the investments under Rule 22e-4(b)(1), and making the 
required filings on behalf of the Fund with the Commission pursuant to Rule 30b1-10. The Fund’s 
trustees, including Masella, were responsible for exercising oversight of the Fund’s LRMP under 
the Liquidity Rule. 
 
2. Masella, who knew the private placement shares were illiquid and restricted, 
worked with Pinnacle and its principals to classify the investment as “less liquid” rather than 
“illiquid.” Masella willfully counseled the Fund that the “less liquid” classification was justified 
based on the portfolio manager’s purported belief that he could sell the shares in seven calendar 
days. Masella knew, or should have known, that the portfolio manager’s belief was not reasonable 
because it was based on purported facts that Masella knew, or should have known, were not well 
founded or supported, including that there were contractual limitations on the transfer of the shares, 
there was no trading market for the shares, and the Fund’s counsel and auditors both advised that 
the shares were illiquid.  Masella failed to exercise reasonable oversight of the LRMP and as a 
result, also caused the Fund’s violations of Rule 22e-4(b)(1). 
 
 
 
Respondent 
 
3. Joseph Masella was a trustee of the NYSA Fund from 1997 to 2021, and from 
2011 to 2021, served as Chief Executive Officer (“CEO”) of an affiliate of Pinnacle Advisors, 
LLC. The affiliate is an investment adviser registered with the Commission. Masella, age 73, is a 
 
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  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  
 

 
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resident of Bernhards Bay, New York, and an attorney licensed (inactive) in New Jersey. Masella 
was not legal counsel to the Fund and did not provide legal services to the Fund. 
 
Other Relevant Entities 
 
4. The NYSA Fund was the sole series of the NYSA Series Trust (the NYSA Fund 
and the NYSA Series Trust are referred to collectively as the “NYSA Fund”). The NYSA Fund 
was an open-end registered investment company until September 2020 when it liquidated most of 
its assets, deregistered as an investment company, and became a liquidating trust. In an annual 
shareholder report filed with the Commission in July 2019 for the fiscal year ending March 31, 
2019, the NYSA Fund reported total assets of approximately $1.89 million. In December 2019, the 
NYSA Fund filed a semi-annual report with the Commission reporting approximately $1.61 
million in total assets.  
 
5. Pinnacle Advisors, LLC (“Pinnacle”), is a New York limited liability company 
with its principal place of business in East Syracuse, New York, and has been registered with the 
Commission as an investment adviser since 1996. Pinnacle is owned by six individuals, including 
the Fund’s portfolio manager and Chief Compliance Officer (“CCO”). Masella is not one of the six 
individuals who own Pinnacle. Pinnacle had approximately $517,000 in assets under management 
as of February 2022. Pinnacle’s sole client is the NYSA Fund, now a liquidating trust. Pinnacle 
was the administrator of the NYSA Fund’s LRMP. 
 
Background 
 
The Liquidity Rule: Liquidity Risk Management Programs  
 
6. The Liquidity Rule requires open-end funds to manage liquidity risk by, among 
other things, establishing a LRMP, the written framework to classify the liquidity of portfolio 
investments “using information obtained after reasonable inquiry and taking into account relevant 
market, trading, and investment-specific considerations,” and according to defined categories.  
Rule 22e-4(b)(1)(ii). An “illiquid investment” is defined as “any investment the fund reasonably 
expects cannot be sold or disposed of in current market conditions in seven calendar days or less 
without significantly changing the market value of the investment.” Rule 22e-4(a)(8). A “less 
liquid investment” is an investment that can be sold or disposed of in seven days “but where the 
sale or disposition is reasonably expected to settle in more than seven calendar days.” Rule 22e-
4(a)(10). 
 
7. A fund’s board and the administrator of the LRMP (the “Administrator”) are 
responsible for managing the fund’s liquidity risk. “[T]he role of the board under the rule is one of 
general oversight, and consistent with that obligation we expect that directors will exercise their 
reasonable business judgment in overseeing the program on behalf of the fund’s investors.” See 
Final Rule Release No. 33-10233, Investment Company Liquidity Risk Management Programs, 
October 2016, at § III.H, p. 249 (“Adopting Release”). Rule 22e-4(b)(2) expressly requires the 
board to approve the LRMP, approve the designation of the Administrator, and review, no less 

 
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frequently than annually, a written report prepared by the Administrator. “Given the board of 
directors’ historical oversight role, the Commission continues to believe it is appropriate to require 
a fund’s board to oversee the fund’s liquidity risk management program. The rule’s requirements 
are designed to facilitate the board’s oversight of the adequacy and effectiveness of the fund’s 
liquidity risk management program.” Adopting Release, at p. 250.  In addition to the board’s 
general oversight responsibility for the LRMP under the Liquidity Rule, during the relevant time 
period, the Fund’s Statement of Additional Information (“SAI”), a part of the Fund’s registration 
statement, stated: “Under the supervision of the Board of Trustees, the Adviser determines the 
liquidity of the Fund’s investments.” 
 
8. By June 1, 2019, the Fund was required to adopt and implement the LRMP, 
designate the program’s Administrator, and make an initial assessment of its liquidity risk. See 
Rule 22e-4(b)(1)(i)-(ii). It was also required to determine which of its investments were “illiquid,” 
as defined in the rule, for purposes of complying with the rule’s 15% limit on illiquid investments 
that are assets and making related board notifications and filings with the Commission. See Interim 
Final Rule, Investment Company Liquidity Risk Management Programs, Rel. IC-33010 (Feb. 22, 
2018) (extending by six months the compliance date for certain requirements under Rule 22e-4, but 
not the 15% illiquid investment limit, aspects of the portfolio classification requirement relating to 
implementation of that limit, or the related board and Commission reporting requirements).  While 
the Administrator was not required to implement the liquidity classification required by Rule 22e-4 
for the Fund’s entire portfolio of investments until December 1, 2019, if on June 1, 2019 or at any 
time thereafter, the Fund’s illiquid investments that were assets exceeded 15% of net assets, then 
the Fund was required, within one business day, to have the Administrator report such an 
occurrence to the board—“with an explanation of the extent and causes of the occurrence, and how 
[the Fund] plan[ned] to bring the illiquid investments to or below 15% of net assets within a 
reasonable period of time”—and also make a confidential filing with the Commission on Form N-
LIQUID, reporting the breach. See Rule 30b1-10.  If the Fund’s illiquid investments remained 
above 15% of net assets 30 days from the occurrence (and at each consecutive 30 day period 
thereafter), the Fund’s board was required to assess whether the plan presented to it continued to be 
in the best interest of the Fund. See Rule 22e-4(b)(1)(iv)(A) & (B). 
 
9. In 2018 and early 2019, outside counsel for the Fund repeatedly advised the Fund 
board and Pinnacle of the Liquidity Rule’s requirements and urged them to develop a strategy for 
compliance. In a memo to the board dated February 24, 2019, she reminded the board that the 
Fund would be required to adopt and implement a LRMP on or before June 1, 2019, and that the 
board would have oversight responsibility for the LRMP. At the March 8, 2019 board meeting, she 
again reminded the board and Pinnacle that the Fund was “well over” the 15% illiquid investment 
limit, and if that remained the case on June 1, “management of the fund would be required to 
provide the trustees with a plan for restructuring the portfolio to bring that percentage down to 
15%.” On May 14, 2019, she advised Masella and Pinnacle:  
 
[T]he Fund has known since October 2016 that it would have to pare down its 
position in illiquid securities. . . . [R]egulators could take the position that the 
Fund has been on notice that it needed to restructure its portfolio since 2016 

 
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and, if the Fund has not divested a sufficient portion of its illiquid investments 
by June 1, the Fund will be viewed as having disregarded the rule. 
 
The Fund’s Illiquid Investments Exceeded 15% 
 
10. From June 1, 2019 through at least June 16, 2020, the Fund held approximately 
21% to 26.38% of its net assets in illiquid investments that were assets. The largest illiquid 
investment was 84,332 shares of a private company (the “Company”) that the Fund had purchased 
in private placement transactions during 2007 to 2009 (the “Company Shares”) and which, as of 
June 1, 2019, represented approximately 23.45% of the Fund’s net assets. 
 
11. The Company Shares were restricted from resale under the Securities Act of 1933, 
and contractual provisions in the Company’s operating agreement also limited transferability. Both 
the Company and its shareholders had a right of first refusal (“ROFR”). This required any 
shareholder proposing to sell its shares, having received a bona fide purchase offer, to first make 
the shares available for purchase by the Company, with an exercise period of fifteen business days. 
If the Company did not intend to exercise its right to purchase the shares, it had to inform the 
remaining shareholders within three business days after the end of the Company’s exercise period; 
the remaining shareholders then had a ten business day exercise period in which to purchase the 
offered shares. In addition, pursuant to a co-sale provision in the Company’s operating agreement, 
all shareholders had the right to join in the selling opportunity by selling a pro rata portion of their 
own shares to the prospective buyer, on the same terms and conditions as agreed to between the 
selling shareholder and the prospective buyer.   
 
12. The Fund board was responsible for fair valuing the Fund’s illiquid investments and 
it delegated that responsibility to its valuation committee, comprised of the two independent 
trustees and the Fund’s CCO. Masella was not a member of the valuation committee. The 
committee, however, presented its valuation recommendations for the Company Shares at the 
board’s quarterly meetings, which Masella attended. In addition, at most board meetings, the 
Fund’s portfolio manager led a discussion regarding the Fund’s investment in the Company. At all 
times before and after June 1, 2019, the Fund reported the restricted Company Shares as illiquid, in 
accordance with generally accepted accounting principles, in its audited financial statements and 
shareholder reports. 
 
13. In letters dated April 2, 2019 and May 17, 2019, in response to questions from the 
Commission’s Division of Investment Management Disclosure Review and Accounting Office 
(“IM staff”) about how the Fund planned to comply with the Liquidity Rule, the Fund told IM staff 
that the Company Shares were subject to transfer restrictions and were an illiquid investment “as 
that term is defined in Rule 22e-4.” Masella worked with Fund counsel, Pinnacle, and Pinnacle’s 
principals to prepare the letters. 
 
14. On or around May 16, 2019, the Company’s CEO told the board, Pinnacle, and 
Fund counsel that the Company would not exercise its ROFR to purchase some or all of the 
Company Shares held by the Fund, and on May 22, 2019, he sent the Company’s operating 

 
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agreement to Pinnacle’s CCO (who also served as the Fund’s CCO), pointing out the transfer 
restrictions. On May 31, 2019, Fund counsel emailed Masella and Pinnacle to recommend that the 
Fund classify the Company Shares as illiquid, based on the legal and contractual restrictions on 
transfer, the fact that the Company was not interested in re-purchasing any of the Company Shares 
held by the Fund, the lack of trading market, and “the fact that we have already signaled to the 
SEC that we cannot readily sell a sufficient number of shares to bring the total percentage of 
illiquid investments to below 15% . . . .” 
 
The Fund Violated the Liquidity Rule by Failing to Classify the Company Shares as 
“Illiquid” and Misled IM Staff 
 
15. In late May 2019, Masella counseled Pinnacle that the Fund could claim the 
Company Shares were “less liquid” if (a) the Fund were to offer the shares to the Company or a 
prospective buyer at or below the Fund’s current carrying value or the Company’s then-offering 
price; and (b) the Fund inquired of the Company whether such an offer or sale would cause the 
Company to significantly change the price at which it was offering shares, and the Company 
responded that such an offer or sale by the Fund would not cause it to significantly change the 
offering price. Pinnacle, counseled by Masella, decided that the Fund would classify the Company 
Shares as “less liquid” rather than “illiquid” under the Liquidity Rule based upon the portfolio 
manager’s belief that he could sell the shares within seven days because customers of the Fund’s 
affiliated broker-dealer had purportedly expressed interest in buying the shares, and the purported 
disclosure of a pending transaction between the Company and a third-party had purportedly 
generated renewed interest in the Company.  
 
16. The Fund, however, had made no offers to sell the Company Shares, and the 
portfolio manager had no commitment from any potential buyers who had been informed of the 
transfer restrictions and co-sale provisions, and were ready and willing to purchase the Company 
Shares. In addition, in May 2019 the Company had specifically asked Pinnacle not to disclose the 
pending transaction with a third-party because it had not yet been finalized. On June 7, 2019, after 
receiving a draft copy of the Form N-LIQUID, Masella instructed the Fund’s and Pinnacle’s CCO 
not to file the Form N-LIQUID since it would be unnecessary in light of the “less liquid” 
classification. Masella then called the independent trustees to inform them that the Fund would 
classify the restricted shares as “less liquid.” 
 
17. In June 2019, the Fund’s auditors told Masella and Pinnacle’s CCO that they did 
not believe the Company Shares could be sold within seven days, and that they did not agree that 
the Fund’s holding of Company Shares was “less liquid.” 
 
18. In the first half of June, Masella, Fund counsel, and Pinnacle’s CCO exchanged 
multiple drafts of the LRMP. The draft LRMP required the Administrator to make the liquidity 
classification using “relevant market, trading, and investment specific considerations,” and cited 
specific factors noted in the Adopting Release when determining whether an investment is illiquid, 
including “Restrictions on Trading and Limitations on Transfer.” Those drafts included the 
statement that the board “acknowledges that it has oversight responsibility for the Program as well 

 
 7 
as general oversight responsibility for the risks attendant to operations of the Fund.” On December 
13, 2019, the board adopted a version of the LRMP that excluded this statement. 
 
19. On or around June 10 and June 24, 2019, Pinnacle and Masella drafted and sent two 
additional letters (virtually identical with the June 24, 2019 letter attaching the LRMP) to IM staff 
containing false and/or incomplete information to justify the “less liquid” classification of the 
Company Shares. The letters were signed by the Fund’s portfolio manager and President. The 
letters: 
 
• claimed that the Fund could sell the shares within seven calendar days or less without 
disclosing the transfer restrictions, the fifteen-day and ten-day ROFR exercise periods, 
or the co-sale provision;   
• claimed that the ROFR provision represented another potential buyer for the Company 
Shares held by the Fund, without disclosing that the Company’s CEO had told Pinnacle 
and the board on or around May 16, 2019 that the Company would not purchase any of 
these shares; 
• claimed that the Company had “recently sold its shares” at a price higher than the 
Fund’s valuation of the shares, which was misleading because, as Pinnacle and Masella 
knew, or should have known, the Company had last issued shares in August 2018; 
• claimed that customers of an affiliated broker-dealer had expressed interest in 
purchasing the Company’s shares, when, in fact, none had done so, as the Fund had not 
attempted to sell the Company Shares;  and   
• claimed that the news of an impending sale of intellectual property by the Company 
had “stimulated interest in the company,” but omitted that the potential sale had not 
been made public. In May 2019, Masella had noted to Fund counsel and Pinnacle that 
this would undercut arguments the Fund had previously made to IM staff: “[The 
Company] wants no public disclosure of its pending product transaction. Given that the 
pending transaction was the essence of our argument to the SEC to allow the Nysa 
Fund to maintain ownership of [the Company Shares], it looks like we’ll need to 
reconsider our position.” 
20. Following Pinnacle’s decision to not follow the advice of Fund counsel regarding 
the liquidity classification, Fund counsel resigned at the June 14, 2019 board meeting. At the 
meeting, Pinnacle’s CCO informed the board that the “less liquid” classification for the Company 
Shares had been “presented to the SEC,” and that he and the portfolio manager would “present the 
classification,” as well as discuss the LRMP, at the September 2019 board meeting. The board 
appointed Pinnacle to serve as the LRMP Administrator and appointed the Fund’s portfolio 
manager and CCO to implement the LRMP. 
 
21. At the September 2019 board meeting, Masella reviewed for the board the sequence 
of events that led to the “less liquid” classification for the Company Shares. One of the 

 
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independent trustees indicated that he understood from the Fund’s auditors (who were not present 
at the meeting) that the asset was illiquid, and requested an update from the auditors as to their 
opinion on the classification. New Fund counsel and Pinnacle’s CCO spoke with the Fund’s 
auditors on or around December 30, 2019, and the auditors continued to believe that the Fund’s 
Company Shares were illiquid.   
 
22. On December 20, 2019, following a conference call in which the board and new 
Fund counsel participated, Masella, on behalf of the board and new Fund counsel, requested that 
the Administrator prepare a memorandum presenting and explaining Fund management’s position 
on the liquidity classification of the Company Shares. On December 22, 2019, the Administrator 
provided the board with a memorandum recommending that the Company Shares be classified as 
“less liquid.” While the memorandum described potential buyers of the Company Shares as 
“individual accredited investors who are clients of the Fund’s affiliated broker-dealer,” the Fund 
had not, in fact, identified any potential buyers who had been informed of the transfer restrictions 
and co-sale provisions, and were ready and willing to purchase the Company Shares. And as a 
general matter, the memo repeated virtually verbatim the factors set forth in the Fund’s June 10, 
2019 and June 24, 2019 letters to IM staff. The memo referred to the intellectual property sale 
entered into between the Company and a third-party, even though the third-party had terminated 
that deal in October 2019. On December 23, 2019, the board agreed that the Company Shares 
should be classified as “less liquid.” 
 
In June 2020, the Fund Re-Classified the Company Shares as Illiquid,  
Filed Form N-LIQUID, and Began Winding Down 
 
23. On February 20, 2020, Fund counsel advised Pinnacle that the Fund would be 
unable to cross-trade the Company Shares pursuant to Section 17(a) and related exemptive rules 
under the Investment Company Act because the Fund did not have an independent valuation for 
the shares. At a board meeting on the following day, February 21, 2020, Fund counsel also advised 
the board that the Fund needed to consider classifying the Company Shares as illiquid under the 
Liquidity Rule because the Fund could not likely sell the Company Shares within a seven-day 
period. In the immediate aftermath of the February board meeting, the Administrator took no steps 
to change the liquidity classification or file Form N-LIQUID. 
 
24. In April 2020, the Fund’s auditors resigned from auditing the Fund due to concerns 
about the valuations of the illiquid securities it held and material weakness in its internal controls 
based on Pinnacle’s “gross negligence” in performing asset diversification tests in 2018 and 2019, 
resulting in the Fund losing its regulated investment company status under Subchapter M of the 
Internal Revenue Code. The Fund’s refusal to follow counsel’s advice on the liquidity 
classification also played a role in the auditors’ internal controls conclusion and decision to resign 
from the engagement.  
 
25. In May and early June 2020, Fund counsel twice reminded the Administrator to 
review the LRMP to determine whether the Fund needed to file Form N-LIQUID, and to discuss it 

 
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with the board. The Administrator took no steps in response to Fund counsel’s emails to change the 
liquidity classification of the Company Shares or file the Form N-LIQUID. 
 
26. On or around June 9 and June 11, 2020, IM staff asked Masella about the status of 
the Fund’s Form N-LIQUID filing and informed him that the Fund would need to enhance its 
prospectus disclosures about the special risk factors relating to illiquid securities, and would have 
to sticker the prospectus, i.e., attach a notice to the prospectus calling attention to the changes. IM 
staff also suggested that the Fund’s annual report discuss the risks to shareholders presented by the 
Company Shares, among other things. 
 
27. On June 16, 2020, Pinnacle’s CCO filed the Form N-LIQUID on behalf of the 
Fund, which indicated that the Company Shares were illiquid and exceeded 15% of net assets as of 
February 21, 2020. 
 
28. After a call with IM staff on or around June 30, 2020, the Fund stopped issuing its 
own shares to investors. At a board meeting on August 28, 2020, the board approved a wind-down 
proposal and on September 8, 2020, the Fund sold all of its liquid assets. On September 9, 2020, 
the Fund filed a Notice of Application for Deregistration under Section 8(f) of the Investment 
Company Act, and on September 29, 2020, the Commission issued a deregistration order. 
 
29. To date, the liquidating trust has not sold the Company Shares, and as a 
consequence, the liquidating trust has made no distributions to former shareholders of the Fund.  
 
30. As a result of the conduct described above, Masella caused and willfully
2
 counseled 
the Fund’s violations of Rule 22e-4(b)(1) of the Investment Company Act, which requires an open-
end registered investment company to adopt and implement a written liquidity risk management 
program that is reasonably designed to assess and manage its liquidity risk, including the 
assessment, management, and periodic review of liquidity risk, and, using information obtained 
after reasonable inquiry and taking into account relevant market, trading, and investment-specific 
considerations, classify each of its portfolio investments as a highly liquid investment, moderately 
liquid investment, less liquid investment, or illiquid investment, and review its portfolio 
investments’ classifications at least monthly and more frequently if changes in relevant market, 
trading, and investment-specific considerations are reasonably expected to materially affect one or 
more of the classifications, and take certain actions if it has more than 15% of its net assets in 
illiquid investments that are assets.   
 
 
2
 “Willfully,” for purposes of imposing relief under Section 203(f) of the Advisers Act and Section 9(b) 
of the Investment Company Act, “‘means no more than that the person charged with the duty knows what 
he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 
969, 977 (D.C. Cir. 1949)).  The decision in The Robare Group, Ltd. v. SEC, which construed the term 
“willfully” for purposes of a differently structured statutory provision, does not alter that standard.  922 
F.3d 468, 478-79 (D.C. Cir. 2019) (setting forth the showing required to establish that a person has 
“willfully omit[ted]” material information from a required disclosure in violation of Section 207 of the 
Advisers Act). 

 
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Undertaking 
 
Respondent has undertaken to: 
 
31. Provide to the Commission, within thirty (30) days after the end of the six (6) month 
suspension and prohibition period described below, an affidavit that he has complied fully with the 
sanctions described in Section IV below.  
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate, in the public interest, to 
impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Section 203(f) of the Advisers Act, and Sections 9(b) and 9(f) of 
the Investment Company Act, it is hereby ORDERED that: 
 
 A. Respondent cease and desist from committing or causing any violations and any 
future violations of Rule 22e-4 under the Investment Company Act. 
 
B. Respondent be, and hereby is: 
 
suspended from association with any investment adviser, broker, dealer, 
municipal securities dealer, municipal advisor, transfer agent, or nationally 
recognized statistical rating organization; and 
 
prohibited from serving or acting as an employee, officer, director, member 
of an advisory board, investment adviser or depositor of, or principal 
underwriter for, a registered investment company or affiliated person of such 
investment adviser, depositor, or principal underwriter, 
 
for a period of six (6) months, effective on the second Monday following the date of entry of this 
Order. 
 
C. Respondent shall, within 30 days of the entry of this Order, pay a civil money 
penalty in the amount of $20,000 to the Securities and Exchange Commission. The Commission 
may distribute civil money penalties collected in this proceeding if, in its discretion, the 
Commission orders the establishment of a Fair Fund pursuant to 15 U.S.C. § 7246, Section 308(a) 
of the Sarbanes-Oxley Act of 2002. The Commission will hold funds paid pursuant to this 
paragraph in an account at the United States Treasury pending a decision whether the Commission, 
in its discretion, will seek to distribute funds or, subject to Exchange Act Section 21F(g)(3), 
transfer them to the general fund of the United States Treasury. If timely payment is not made, 
additional interest shall accrue pursuant to 31 U.S.C. §3717.   
 
Payment must be made in one of the following ways:   

 
 11 
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Joseph Masella as a Respondent in these proceedings, and the file number of these proceedings; a 
copy of the cover letter and check or money order must be sent to Hane L. Kim, Assistant Regional 
Director, U.S. Securities and Exchange Commission, Division of Enforcement, 100 Pearl St, Suite 
20-100, New York, NY 10004-2616.   
 
 D. Regardless of whether the Commission in its discretion orders the creation of a Fair 
Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money 
penalties pursuant to this Order shall be treated as penalties paid to the government for all 
purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, 
Respondent agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor 
shall he benefit by, offset or reduction of any award of compensatory damages by the amount of 
any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If the court in 
any Related Investor Action grants such a Penalty Offset, Respondent agrees that he shall, within 
30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in 
this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission. 
Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change 
the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a 
“Related Investor Action” means a private damages action brought against Respondent by or on 
behalf of one or more investors based on substantially the same facts as alleged in the Order 
instituted by the Commission in this proceeding. 
 
  E. Respondent shall comply with the undertaking enumerated in Section III, 
paragraph 31 above.  
 
 
V. 

 
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It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
        Secretary 
 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No.  6303 / May 5, 2023 

 

INVESTMENT COMPANY ACT OF 1940 

Release No.  34908 / May 5, 2023 

 

ADMINISTRATIVE PROCEEDING 

File No.  3-21406 

 

In the Matter of 

 

JOSEPH MASELLA, 

 

Respondent. 

 

 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTION 203(f) OF THE 

INVESTMENT ADVISERS ACT OF 1940, 

AND SECTIONS 9(b) AND 9(f) OF THE 

INVESTMENT COMPANY ACT OF 1940, 

MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASE-

AND-DESIST ORDER  

   

 

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and 

Sections 9(b) and 9(f) of the Investment Company Act of 1940 (“Investment Company Act”) 

against Joseph Masella (“Masella” or “Respondent”).   

 

II. 

 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the purpose 

of these proceedings and any other proceedings brought by or on behalf of the Commission, or to 

which the Commission is a party, and without admitting or denying the findings herein, except as 

to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 

admitted, and except as provided herein in Section V, Respondent consents to the entry of this 

Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to Section 203(f) of 

the Investment Advisers Act of 1940, and Sections 9(b) and 9(f) of the Investment Company Act 

of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order  

(“Order”), as set forth below. 



 

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III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

  

Summary 

 

1. These proceedings arise from violations by the NYSA Fund (the “Fund”), a 

formerly registered investment company, and Masella, formerly an interested trustee on the Fund’s 

board of trustees, relating to the Fund’s failure to comply with the liquidity risk management 

practices set forth in Rule 22e-4 under the Investment Company Act (the “Liquidity Rule”). From 

June 2019 to June 2020, the Fund violated the Liquidity Rule and Rule 30b1-10 under the 

Investment Company Act because it classified a large, restricted private placement investment it 

held as “less liquid” rather than “illiquid.” Although more than 15% of its net assets were in 

illiquid investments, it failed to comply with applicable reporting and filing requirements. Pinnacle 

Advisors, LLC (“Pinnacle”), the Fund’s adviser and designated administrator of its liquidity risk 

management program (“LRMP”), and its principals were responsible for monitoring the liquidity 

of the Fund’s investments, classifying the investments under Rule 22e-4(b)(1), and making the 

required filings on behalf of the Fund with the Commission pursuant to Rule 30b1-10. The Fund’s 

trustees, including Masella, were responsible for exercising oversight of the Fund’s LRMP under 

the Liquidity Rule. 

 

2. Masella, who knew the private placement shares were illiquid and restricted, 

worked with Pinnacle and its principals to classify the investment as “less liquid” rather than 

“illiquid.” Masella willfully counseled the Fund that the “less liquid” classification was justified 

based on the portfolio manager’s purported belief that he could sell the shares in seven calendar 

days. Masella knew, or should have known, that the portfolio manager’s belief was not reasonable 

because it was based on purported facts that Masella knew, or should have known, were not well 

founded or supported, including that there were contractual limitations on the transfer of the shares, 

there was no trading market for the shares, and the Fund’s counsel and auditors both advised that 

the shares were illiquid.  Masella failed to exercise reasonable oversight of the LRMP and as a 

result, also caused the Fund’s violations of Rule 22e-4(b)(1). 

 

 

 

Respondent 

 

3. Joseph Masella was a trustee of the NYSA Fund from 1997 to 2021, and from 

2011 to 2021, served as Chief Executive Officer (“CEO”) of an affiliate of Pinnacle Advisors, 

LLC. The affiliate is an investment adviser registered with the Commission. Masella, age 73, is a 

 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  

 



 

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resident of Bernhards Bay, New York, and an attorney licensed (inactive) in New Jersey. Masella 

was not legal counsel to the Fund and did not provide legal services to the Fund. 

 

Other Relevant Entities 

 

4. The NYSA Fund was the sole series of the NYSA Series Trust (the NYSA Fund 

and the NYSA Series Trust are referred to collectively as the “NYSA Fund”). The NYSA Fund 

was an open-end registered investment company until September 2020 when it liquidated most of 

its assets, deregistered as an investment company, and became a liquidating trust. In an annual 

shareholder report filed with the Commission in July 2019 for the fiscal year ending March 31, 

2019, the NYSA Fund reported total assets of approximately $1.89 million. In December 2019, the 

NYSA Fund filed a semi-annual report with the Commission reporting approximately $1.61 

million in total assets.  

 

5. Pinnacle Advisors, LLC (“Pinnacle”), is a New York limited liability company 

with its principal place of business in East Syracuse, New York, and has been registered with the 

Commission as an investment adviser since 1996. Pinnacle is owned by six individuals, including 

the Fund’s portfolio manager and Chief Compliance Officer (“CCO”). Masella is not one of the six 

individuals who own Pinnacle. Pinnacle had approximately $517,000 in assets under management 

as of February 2022. Pinnacle’s sole client is the NYSA Fund, now a liquidating trust. Pinnacle 

was the administrator of the NYSA Fund’s LRMP. 

 

Background 

 

The Liquidity Rule: Liquidity Risk Management Programs  

 

6. The Liquidity Rule requires open-end funds to manage liquidity risk by, among 

other things, establishing a LRMP, the written framework to classify the liquidity of portfolio 

investments “using information obtained after reasonable inquiry and taking into account relevant 

market, trading, and investment-specific considerations,” and according to defined categories.  

Rule 22e-4(b)(1)(ii). An “illiquid investment” is defined as “any investment the fund reasonably 

expects cannot be sold or disposed of in current market conditions in seven calendar days or less 

without significantly changing the market value of the investment.” Rule 22e-4(a)(8). A “less 

liquid investment” is an investment that can be sold or disposed of in seven days “but where the 

sale or disposition is reasonably expected to settle in more than seven calendar days.” Rule 22e-

4(a)(10). 

 

7. A fund’s board and the administrator of the LRMP (the “Administrator”) are 

responsible for managing the fund’s liquidity risk. “[T]he role of the board under the rule is one of 

general oversight, and consistent with that obligation we expect that directors will exercise their 

reasonable business judgment in overseeing the program on behalf of the fund’s investors.” See 

Final Rule Release No. 33-10233, Investment Company Liquidity Risk Management Programs, 

October 2016, at § III.H, p. 249 (“Adopting Release”). Rule 22e-4(b)(2) expressly requires the 

board to approve the LRMP, approve the designation of the Administrator, and review, no less 



 

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frequently than annually, a written report prepared by the Administrator. “Given the board of 

directors’ historical oversight role, the Commission continues to believe it is appropriate to require 

a fund’s board to oversee the fund’s liquidity risk management program. The rule’s requirements 

are designed to facilitate the board’s oversight of the adequacy and effectiveness of the fund’s 

liquidity risk management program.” Adopting Release, at p. 250.  In addition to the board’s 

general oversight responsibility for the LRMP under the Liquidity Rule, during the relevant time 

period, the Fund’s Statement of Additional Information (“SAI”), a part of the Fund’s registration 

statement, stated: “Under the supervision of the Board of Trustees, the Adviser determines the 

liquidity of the Fund’s investments.” 

 

8. By June 1, 2019, the Fund was required to adopt and implement the LRMP, 

designate the program’s Administrator, and make an initial assessment of its liquidity risk. See 

Rule 22e-4(b)(1)(i)-(ii). It was also required to determine which of its investments were “illiquid,” 

as defined in the rule, for purposes of complying with the rule’s 15% limit on illiquid investments 

that are assets and making related board notifications and filings with the Commission. See Interim 

Final Rule, Investment Company Liquidity Risk Management Programs, Rel. IC-33010 (Feb. 22, 

2018) (extending by six months the compliance date for certain requirements under Rule 22e-4, but 

not the 15% illiquid investment limit, aspects of the portfolio classification requirement relating to 

implementation of that limit, or the related board and Commission reporting requirements).  While 

the Administrator was not required to implement the liquidity classification required by Rule 22e-4 

for the Fund’s entire portfolio of investments until December 1, 2019, if on June 1, 2019 or at any 

time thereafter, the Fund’s illiquid investments that were assets exceeded 15% of net assets, then 

the Fund was required, within one business day, to have the Administrator report such an 

occurrence to the board—“with an explanation of the extent and causes of the occurrence, and how 

[the Fund] plan[ned] to bring the illiquid investments to or below 15% of net assets within a 

reasonable period of time”—and also make a confidential filing with the Commission on Form N-

LIQUID, reporting the breach. See Rule 30b1-10.  If the Fund’s illiquid investments remained 

above 15% of net assets 30 days from the occurrence (and at each consecutive 30 day period 

thereafter), the Fund’s board was required to assess whether the plan presented to it continued to be 

in the best interest of the Fund. See Rule 22e-4(b)(1)(iv)(A) & (B). 

 

9. In 2018 and early 2019, outside counsel for the Fund repeatedly advised the Fund 

board and Pinnacle of the Liquidity Rule’s requirements and urged them to develop a strategy for 

compliance. In a memo to the board dated February 24, 2019, she reminded the board that the 

Fund would be required to adopt and implement a LRMP on or before June 1, 2019, and that the 

board would have oversight responsibility for the LRMP. At the March 8, 2019 board meeting, she 

again reminded the board and Pinnacle that the Fund was “well over” the 15% illiquid investment 

limit, and if that remained the case on June 1, “management of the fund would be required to 

provide the trustees with a plan for restructuring the portfolio to bring that percentage down to 

15%.” On May 14, 2019, she advised Masella and Pinnacle:  

 

[T]he Fund has known since October 2016 that it would have to pare down its 

position in illiquid securities. . . . [R]egulators could take the position that the 

Fund has been on notice that it needed to restructure its portfolio since 2016 



 

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and, if the Fund has not divested a sufficient portion of its illiquid investments 

by June 1, the Fund will be viewed as having disregarded the rule. 

 

The Fund’s Illiquid Investments Exceeded 15% 

 

10. From June 1, 2019 through at least June 16, 2020, the Fund held approximately 

21% to 26.38% of its net assets in illiquid investments that were assets. The largest illiquid 

investment was 84,332 shares of a private company (the “Company”) that the Fund had purchased 

in private placement transactions during 2007 to 2009 (the “Company Shares”) and which, as of 

June 1, 2019, represented approximately 23.45% of the Fund’s net assets. 

 

11. The Company Shares were restricted from resale under the Securities Act of 1933, 

and contractual provisions in the Company’s operating agreement also limited transferability. Both 

the Company and its shareholders had a right of first refusal (“ROFR”). This required any 

shareholder proposing to sell its shares, having received a bona fide purchase offer, to first make 

the shares available for purchase by the Company, with an exercise period of fifteen business days. 

If the Company did not intend to exercise its right to purchase the shares, it had to inform the 

remaining shareholders within three business days after the end of the Company’s exercise period; 

the remaining shareholders then had a ten business day exercise period in which to purchase the 

offered shares. In addition, pursuant to a co-sale provision in the Company’s operating agreement, 

all shareholders had the right to join in the selling opportunity by selling a pro rata portion of their 

own shares to the prospective buyer, on the same terms and conditions as agreed to between the 

selling shareholder and the prospective buyer.   

 

12. The Fund board was responsible for fair valuing the Fund’s illiquid investments and 

it delegated that responsibility to its valuation committee, comprised of the two independent 

trustees and the Fund’s CCO. Masella was not a member of the valuation committee. The 

committee, however, presented its valuation recommendations for the Company Shares at the 

board’s quarterly meetings, which Masella attended. In addition, at most board meetings, the 

Fund’s portfolio manager led a discussion regarding the Fund’s investment in the Company. At all 

times before and after June 1, 2019, the Fund reported the restricted Company Shares as illiquid, in 

accordance with generally accepted accounting principles, in its audited financial statements and 

shareholder reports. 

 

13. In letters dated April 2, 2019 and May 17, 2019, in response to questions from the 

Commission’s Division of Investment Management Disclosure Review and Accounting Office 

(“IM staff”) about how the Fund planned to comply with the Liquidity Rule, the Fund told IM staff 

that the Company Shares were subject to transfer restrictions and were an illiquid investment “as 

that term is defined in Rule 22e-4.” Masella worked with Fund counsel, Pinnacle, and Pinnacle’s 

principals to prepare the letters. 

 

14. On or around May 16, 2019, the Company’s CEO told the board, Pinnacle, and 

Fund counsel that the Company would not exercise its ROFR to purchase some or all of the 

Company Shares held by the Fund, and on May 22, 2019, he sent the Company’s operating 



 

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agreement to Pinnacle’s CCO (who also served as the Fund’s CCO), pointing out the transfer 

restrictions. On May 31, 2019, Fund counsel emailed Masella and Pinnacle to recommend that the 

Fund classify the Company Shares as illiquid, based on the legal and contractual restrictions on 

transfer, the fact that the Company was not interested in re-purchasing any of the Company Shares 

held by the Fund, the lack of trading market, and “the fact that we have already signaled to the 

SEC that we cannot readily sell a sufficient number of shares to bring the total percentage of 

illiquid investments to below 15% . . . .” 

 

The Fund Violated the Liquidity Rule by Failing to Classify the Company Shares as 

“Illiquid” and Misled IM Staff 

 

15. In late May 2019, Masella counseled Pinnacle that the Fund could claim the 

Company Shares were “less liquid” if (a) the Fund were to offer the shares to the Company or a 

prospective buyer at or below the Fund’s current carrying value or the Company’s then-offering 

price; and (b) the Fund inquired of the Company whether such an offer or sale would cause the 

Company to significantly change the price at which it was offering shares, and the Company 

responded that such an offer or sale by the Fund would not cause it to significantly change the 

offering price. Pinnacle, counseled by Masella, decided that the Fund would classify the Company 

Shares as “less liquid” rather than “illiquid” under the Liquidity Rule based upon the portfolio 

manager’s belief that he could sell the shares within seven days because customers of the Fund’s 

affiliated broker-dealer had purportedly expressed interest in buying the shares, and the purported 

disclosure of a pending transaction between the Company and a third-party had purportedly 

generated renewed interest in the Company.  

 

16. The Fund, however, had made no offers to sell the Company Shares, and the 

portfolio manager had no commitment from any potential buyers who had been informed of the 

transfer restrictions and co-sale provisions, and were ready and willing to purchase the Company 

Shares. In addition, in May 2019 the Company had specifically asked Pinnacle not to disclose the 

pending transaction with a third-party because it had not yet been finalized. On June 7, 2019, after 

receiving a draft copy of the Form N-LIQUID, Masella instructed the Fund’s and Pinnacle’s CCO 

not to file the Form N-LIQUID since it would be unnecessary in light of the “less liquid” 

classification. Masella then called the independent trustees to inform them that the Fund would 

classify the restricted shares as “less liquid.” 

 

17. In June 2019, the Fund’s auditors told Masella and Pinnacle’s CCO that they did 

not believe the Company Shares could be sold within seven days, and that they did not agree that 

the Fund’s holding of Company Shares was “less liquid.” 

 

18. In the first half of June, Masella, Fund counsel, and Pinnacle’s CCO exchanged 

multiple drafts of the LRMP. The draft LRMP required the Administrator to make the liquidity 

classification using “relevant market, trading, and investment specific considerations,” and cited 

specific factors noted in the Adopting Release when determining whether an investment is illiquid, 

including “Restrictions on Trading and Limitations on Transfer.” Those drafts included the 

statement that the board “acknowledges that it has oversight responsibility for the Program as well 



 

 7 

as general oversight responsibility for the risks attendant to operations of the Fund.” On December 

13, 2019, the board adopted a version of the LRMP that excluded this statement. 

 

19. On or around June 10 and June 24, 2019, Pinnacle and Masella drafted and sent two 

additional letters (virtually identical with the June 24, 2019 letter attaching the LRMP) to IM staff 

containing false and/or incomplete information to justify the “less liquid” classification of the 

Company Shares. The letters were signed by the Fund’s portfolio manager and President. The 

letters: 

 

• claimed that the Fund could sell the shares within seven calendar days or less without 

disclosing the transfer restrictions, the fifteen-day and ten-day ROFR exercise periods, 

or the co-sale provision;   

• claimed that the ROFR provision represented another potential buyer for the Company 

Shares held by the Fund, without disclosing that the Company’s CEO had told Pinnacle 

and the board on or around May 16, 2019 that the Company would not purchase any of 

these shares; 

• claimed that the Company had “recently sold its shares” at a price higher than the 

Fund’s valuation of the shares, which was misleading because, as Pinnacle and Masella 

knew, or should have known, the Company had last issued shares in August 2018; 

• claimed that customers of an affiliated broker-dealer had expressed interest in 

purchasing the Company’s shares, when, in fact, none had done so, as the Fund had not 

attempted to sell the Company Shares;  and   

• claimed that the news of an impending sale of intellectual property by the Company 

had “stimulated interest in the company,” but omitted that the potential sale had not 

been made public. In May 2019, Masella had noted to Fund counsel and Pinnacle that 

this would undercut arguments the Fund had previously made to IM staff: “[The 

Company] wants no public disclosure of its pending product transaction. Given that the 

pending transaction was the essence of our argument to the SEC to allow the Nysa 

Fund to maintain ownership of [the Company Shares], it looks like we’ll need to 

reconsider our position.” 

20. Following Pinnacle’s decision to not follow the advice of Fund counsel regarding 

the liquidity classification, Fund counsel resigned at the June 14, 2019 board meeting. At the 

meeting, Pinnacle’s CCO informed the board that the “less liquid” classification for the Company 

Shares had been “presented to the SEC,” and that he and the portfolio manager would “present the 

classification,” as well as discuss the LRMP, at the September 2019 board meeting. The board 

appointed Pinnacle to serve as the LRMP Administrator and appointed the Fund’s portfolio 

manager and CCO to implement the LRMP. 

 

21. At the September 2019 board meeting, Masella reviewed for the board the sequence 

of events that led to the “less liquid” classification for the Company Shares. One of the 



 

 8 

independent trustees indicated that he understood from the Fund’s auditors (who were not present 

at the meeting) that the asset was illiquid, and requested an update from the auditors as to their 

opinion on the classification. New Fund counsel and Pinnacle’s CCO spoke with the Fund’s 

auditors on or around December 30, 2019, and the auditors continued to believe that the Fund’s 

Company Shares were illiquid.   

 

22. On December 20, 2019, following a conference call in which the board and new 

Fund counsel participated, Masella, on behalf of the board and new Fund counsel, requested that 

the Administrator prepare a memorandum presenting and explaining Fund management’s position 

on the liquidity classification of the Company Shares. On December 22, 2019, the Administrator 

provided the board with a memorandum recommending that the Company Shares be classified as 

“less liquid.” While the memorandum described potential buyers of the Company Shares as 

“individual accredited investors who are clients of the Fund’s affiliated broker-dealer,” the Fund 

had not, in fact, identified any potential buyers who had been informed of the transfer restrictions 

and co-sale provisions, and were ready and willing to purchase the Company Shares. And as a 

general matter, the memo repeated virtually verbatim the factors set forth in the Fund’s June 10, 

2019 and June 24, 2019 letters to IM staff. The memo referred to the intellectual property sale 

entered into between the Company and a third-party, even though the third-party had terminated 

that deal in October 2019. On December 23, 2019, the board agreed that the Company Shares 

should be classified as “less liquid.” 

 

In June 2020, the Fund Re-Classified the Company Shares as Illiquid,  

Filed Form N-LIQUID, and Began Winding Down 

 

23. On February 20, 2020, Fund counsel advised Pinnacle that the Fund would be 

unable to cross-trade the Company Shares pursuant to Section 17(a) and related exemptive rules 

under the Investment Company Act because the Fund did not have an independent valuation for 

the shares. At a board meeting on the following day, February 21, 2020, Fund counsel also advised 

the board that the Fund needed to consider classifying the Company Shares as illiquid under the 

Liquidity Rule because the Fund could not likely sell the Company Shares within a seven-day 

period. In the immediate aftermath of the February board meeting, the Administrator took no steps 

to change the liquidity classification or file Form N-LIQUID. 

 

24. In April 2020, the Fund’s auditors resigned from auditing the Fund due to concerns 

about the valuations of the illiquid securities it held and material weakness in its internal controls 

based on Pinnacle’s “gross negligence” in performing asset diversification tests in 2018 and 2019, 

resulting in the Fund losing its regulated investment company status under Subchapter M of the 

Internal Revenue Code. The Fund’s refusal to follow counsel’s advice on the liquidity 

classification also played a role in the auditors’ internal controls conclusion and decision to resign 

from the engagement.  

 

25. In May and early June 2020, Fund counsel twice reminded the Administrator to 

review the LRMP to determine whether the Fund needed to file Form N-LIQUID, and to discuss it 



 

 9 

with the board. The Administrator took no steps in response to Fund counsel’s emails to change the 

liquidity classification of the Company Shares or file the Form N-LIQUID. 

 

26. On or around June 9 and June 11, 2020, IM staff asked Masella about the status of 

the Fund’s Form N-LIQUID filing and informed him that the Fund would need to enhance its 

prospectus disclosures about the special risk factors relating to illiquid securities, and would have 

to sticker the prospectus, i.e., attach a notice to the prospectus calling attention to the changes. IM 

staff also suggested that the Fund’s annual report discuss the risks to shareholders presented by the 

Company Shares, among other things. 

 

27. On June 16, 2020, Pinnacle’s CCO filed the Form N-LIQUID on behalf of the 

Fund, which indicated that the Company Shares were illiquid and exceeded 15% of net assets as of 

February 21, 2020. 

 

28. After a call with IM staff on or around June 30, 2020, the Fund stopped issuing its 

own shares to investors. At a board meeting on August 28, 2020, the board approved a wind-down 

proposal and on September 8, 2020, the Fund sold all of its liquid assets. On September 9, 2020, 

the Fund filed a Notice of Application for Deregistration under Section 8(f) of the Investment 

Company Act, and on September 29, 2020, the Commission issued a deregistration order. 

 

29. To date, the liquidating trust has not sold the Company Shares, and as a 

consequence, the liquidating trust has made no distributions to former shareholders of the Fund.  

 

30. As a result of the conduct described above, Masella caused and willfully2 counseled 

the Fund’s violations of Rule 22e-4(b)(1) of the Investment Company Act, which requires an open-

end registered investment company to adopt and implement a written liquidity risk management 

program that is reasonably designed to assess and manage its liquidity risk, including the 

assessment, management, and periodic review of liquidity risk, and, using information obtained 

after reasonable inquiry and taking into account relevant market, trading, and investment-specific 

considerations, classify each of its portfolio investments as a highly liquid investment, moderately 

liquid investment, less liquid investment, or illiquid investment, and review its portfolio 

investments’ classifications at least monthly and more frequently if changes in relevant market, 

trading, and investment-specific considerations are reasonably expected to materially affect one or 

more of the classifications, and take certain actions if it has more than 15% of its net assets in 

illiquid investments that are assets.   

 

 
2 “Willfully,” for purposes of imposing relief under Section 203(f) of the Advisers Act and Section 9(b) 

of the Investment Company Act, “‘means no more than that the person charged with the duty knows what 

he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 

969, 977 (D.C. Cir. 1949)).  The decision in The Robare Group, Ltd. v. SEC, which construed the term 

“willfully” for purposes of a differently structured statutory provision, does not alter that standard.  922 

F.3d 468, 478-79 (D.C. Cir. 2019) (setting forth the showing required to establish that a person has 

“willfully omit[ted]” material information from a required disclosure in violation of Section 207 of the 

Advisers Act). 



 

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Undertaking 

 

Respondent has undertaken to: 

 

31. Provide to the Commission, within thirty (30) days after the end of the six (6) month 

suspension and prohibition period described below, an affidavit that he has complied fully with the 

sanctions described in Section IV below.  

 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate, in the public interest, to 

impose the sanctions agreed to in Respondent’s Offer. 

 

 Accordingly, pursuant to Section 203(f) of the Advisers Act, and Sections 9(b) and 9(f) of 

the Investment Company Act, it is hereby ORDERED that: 

 

 A. Respondent cease and desist from committing or causing any violations and any 

future violations of Rule 22e-4 under the Investment Company Act. 

 

B. Respondent be, and hereby is: 

 

suspended from association with any investment adviser, broker, dealer, 

municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization; and 

 

prohibited from serving or acting as an employee, officer, director, member 

of an advisory board, investment adviser or depositor of, or principal 

underwriter for, a registered investment company or affiliated person of such 

investment adviser, depositor, or principal underwriter, 

 

for a period of six (6) months, effective on the second Monday following the date of entry of this 

Order. 

 

C. Respondent shall, within 30 days of the entry of this Order, pay a civil money 

penalty in the amount of $20,000 to the Securities and Exchange Commission. The Commission 

may distribute civil money penalties collected in this proceeding if, in its discretion, the 

Commission orders the establishment of a Fair Fund pursuant to 15 U.S.C. § 7246, Section 308(a) 

of the Sarbanes-Oxley Act of 2002. The Commission will hold funds paid pursuant to this 

paragraph in an account at the United States Treasury pending a decision whether the Commission, 

in its discretion, will seek to distribute funds or, subject to Exchange Act Section 21F(g)(3), 

transfer them to the general fund of the United States Treasury. If timely payment is not made, 

additional interest shall accrue pursuant to 31 U.S.C. §3717.   

 

Payment must be made in one of the following ways:   



 

 11 

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Joseph Masella as a Respondent in these proceedings, and the file number of these proceedings; a 

copy of the cover letter and check or money order must be sent to Hane L. Kim, Assistant Regional 

Director, U.S. Securities and Exchange Commission, Division of Enforcement, 100 Pearl St, Suite 

20-100, New York, NY 10004-2616.   

 

 D. Regardless of whether the Commission in its discretion orders the creation of a Fair 

Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money 

penalties pursuant to this Order shall be treated as penalties paid to the government for all 

purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, 

Respondent agrees that in any Related Investor Action, he shall not argue that he is entitled to, nor 

shall he benefit by, offset or reduction of any award of compensatory damages by the amount of 

any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If the court in 

any Related Investor Action grants such a Penalty Offset, Respondent agrees that he shall, within 

30 days after entry of a final order granting the Penalty Offset, notify the Commission's counsel in 

this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission. 

Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change 

the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a 

“Related Investor Action” means a private damages action brought against Respondent by or on 

behalf of one or more investors based on substantially the same facts as alleged in the Order 

instituted by the Commission in this proceeding. 

 

  E. Respondent shall comply with the undertaking enumerated in Section III, 

paragraph 31 above.  

 

 

V. 

http://www.sec.gov/about/offices/ofm.htm


 

 12 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 

Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 

amounts due by Respondent under this Order or any other judgment, order, consent order, decree 

or settlement agreement entered in connection with this proceeding, is a debt for the violation by 

Respondent of the federal securities laws or any regulation or order issued under such laws, as set 

forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 

 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

        Secretary