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Tuesday, August 22, 2023

Ex-Employees Sue a Presidential Candidate and His ETF Startup

News summary by MFWire's editors

An ETF-entrepreneur-turned-U.S.-presidential-candidate is under legal fire from a pair of fundsters who left his year-old Midwestern startup earlier this year. The news comes as the candidate is poised to take the stage in the first debate of the 2024 race for the White House.

Vivek Ganapathy Ramaswamy
Strive Asset Management, LLC
Co-Founder, Principal Owner
On Friday, Max Chafkin of Bloomberg reported that two ex-Strive Asset Management executives have recently filed lawsuits against Vivek Ramaswamy, co-founder of Strive, who stepped down as executive chairman earlier this year to run for the Republican nomination for U.S. president. Both lawsuits reportedly target Ramaswamy, fellow Strive co-founder Anson Frericks, and Strive itself.

"Strive intends to vigorously defend itself," a company spokesperson told Bloomberg. "Beyond that, it is our policy not to comment on active litigation."

Tricia McLaughlin, communications director for Ramaswamy, highlighted the candidate's departure from Strive earlier this year. (Though, per Strive's form ADV filed in June, about four months after his departure, Ramaswamy remains the principal owner of the firm.)

"Strive is completely separate from Vivek and his campaign," McLaughlin told Bloomberg, while not commenting on the lawsuits.

Citywire, ETF.com, Forbes, and InvestmentNews all picked up on the news of the two lawsuits.

Overland Park, Kansas-based John Phillips, who served as senior vice president and heartland regional director for about six months before leaving Strive back in March, reportedly sued Frericks, Ramaswamy, and Strive in Kansas in June. Per Bloomberg, Phillips' suit accuses Strive and its cofounders of misrepresenting Strive's "finances to employees and investors, exaggerating its growth when pitching venture capitalists and recruiting staff." He describes the firm as undercapitalized and attacks Ramaswamy for breaking promises of commitment to the firm by leaving to run for president.

According to Bloomberg, Strive has filed to dismiss Phillips' suit.

Westfield, New Jersey-based Joyce Rosely, who served as executive vice president and co-head of institutional sales and distribution at Strive for about eight months before leaving back in March, reportedly sued Strive, Ramaswamy, and Frericks on August 8 in Union County, New Jersey. Per Bloomberg, Rosely claims she was the victim of age discrimination and that she was fired in retaliation for reporting that she witnessed sexual harassment and for complaining about Strive's sales and marketing practices as violating securities laws.

According to Rosely (who now serves as senior relationship manager at MarketAxess), everyone pushed out in Strive's March reorganization was over 40. She reportedly claims that she complained about Ramaswamy's social media posts, and that she was asked to use sales materials that promised future returns and to allow unregistered employees to pitch clients. And accordingly to Rosely, when she informed Frericks, then Strive's president, about aggressive sexual advances that she witnessed, he told her that it was "none of his business."

Adam Gana, a lawyer at Gana Weinstein, told ETF.com that most lawsuits like these result in settlements.

"When you become a candidate for president and start rising in the polls, you are invariably going to be under a microscope," Gana told the publication. "Litigations like these happen to businesses, some more than others, but when you're running for president, they get more attention."

Ramaswamy and Frericks, who were high school classmates, founded Strive in early 2022 in Dublin, Ohio, a suburb of Columbus. The firm takes an activist, anti-ESG, "anti-woke" approach to investing, urging companies they invest in to "focus on excellence over politics." The Strive folks teamed up with an ETF-in-a-box shop to launch the first Strive-subadvised ETF last August, bringing in more than $300 million in AUM in the first three weeks.

After Ramaswamy stepped back in February 2023, chief investment officer Matt Cole took over as CEO in April. Now, about one year after entering the ETF space, Strive has surpassed $900 million in AUM, they now power model portfolios and 10 ETFs, and they're launching a 401(k) product.

Meanwhile, Ramaswamy has officially qualified, alongside seven other candidates, to participate in the first Republican primary debate tomorrow in Milwaukee. As of today, per FiveThirtyEight's polling averages, Ramaswamy is polling third among all Republican candidates with 8.9 percent, behind only former U.S. President Donald Trump and current Florida Governor Ron DeSantis. 

Edited by: Neil Anderson, Managing Editor

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