Harley Bassman, known for inventing the main gauge of Treasury volatility, is embroiled in an escalating legal battle with his former employer, Simplify Asset Management. Bassman is suing Simplify for an alleged $5 million in unpaid compensation, claiming breach of revenue-sharing agreements for ETFs he helped create. He was removed as portfolio manager from several funds in November, including a $1.7 billion mortgage-backed securities ETF (MTBA), which he alleges was in retaliation for the payment dispute. Bassman claims his agreement entitled him to 60% of the net revenue from the Simplify Interest Rate Hedge ETF (PFIX) while employed and 25% after departure, and 20% of MTBA's revenue.
This conflict raises a broader question for the rapidly evolving ETF industry: who owns the economics of an investment strategy when an individual conceives the idea and an asset manager operationalizes it into a fund? As ETFs move beyond simple index tracking into more complex areas like options, derivatives, and active management, the intellectual property behind these strategies becomes increasingly valuable. The PFIX fund, with a 0.5% expense ratio, once peaked at $468 million in assets, while MTBA has grown to approximately $1.4 billion, making it a significant earner for Simplify. The financial implications are substantial, with MTBA alone generating an estimated $2.1 million annually in fund fees based on its 0.15% net expense ratio.
Beyond the compensation lawsuit, Bassman, who remains Simplify's fourth-largest common shareholder, has challenged the firm's business practices. In an August letter to shareholders, he raised concerns about Simplify's growth claims, fee structures, and "Russian doll stacking," where Simplify funds invest in other Simplify funds without fee waivers. He highlighted that about 38% of Simplify's $13.6 billion in assets under management effectively originates from other Simplify ETFs, and the SBIL money-market fund, with $4.8 billion, is entirely funded by other Simplify products. Bassman argues these practices suggest a lack of management and fiduciary oversight that could harm the company and its investors, pointing out that an affiliate investment in the SVOL fund (Simplify Volatility Premium ETF) holds Chinese shares and municipal bonds, which do not align with its stated goal of crash protection.
This case comes amidst increased competition and scrutiny in the $16 trillion US ETF market, with nearly 988 new ETFs launched this year alone. Analyst reactions suggest that while internal fund usage is common, the lack of fee rebates for affiliate investments is unusual and raises questions about transparency and investor value. Other key personnel, including Head of Distribution T.J. Gardner, have departed, and another former portfolio manager, Powis Forjoe, has also sued Simplify for breach of contract. These developments underscore the growing importance of clearly defined contracts regarding strategy ownership, revenue sharing, and post-employment rights as asset managers increasingly recruit specialized talent to launch differentiated ETFs.
Simplify CEO Paul Kim has disputed Bassman's claims, stating the company looks forward to disputing them in court. He also dismissed Bassman's shareholder letter as a "one-sided narrative from an ex-employee." The resolution of this dispute could have significant implications for the broader ETF industry, shaping how intellectual property is valued and compensated in a market where proprietary models and trading frameworks are becoming key differentiators for fund success.
