VanEck Associates Corporation will pay a $1.75 million fine to resolve Securities and Exchange Commission (SEC) charges related to the 2021 launch of a social media-focused exchange-traded fund (ETF).
The US SEC imposed a civil penalty on the investment adviser. On February 16, the SEC revealed in a statement that during the launch of the VanEck Social Sentiment ETF in March 2021, VanEck failed to fully disclose the involvement of a prominent social media personality in marketing the product.
The ETF intended to track an index using “positive information” from social media and other data sources. However, the SEC found that, in attempting to boost the fund's success through social media, VanEck collaborated with an influential and divisive online personality to enhance the fund's appeal.
Although the financial watchdog did not explicitly name the influencer, reports in 2021 previously connected David Portnoy, founder of Barstool Sports, to promoting VanEck's ETF. The regulator noted an undisclosed detail: the influencer's fee was tied to the fund's growth, ensuring greater compensation as the fund expanded.
The SEC criticized the hidden agreement, focusing on the fact that VanEck did not inform the ETF board of directors of the influencer's intention to participate. This undisclosed agreement had significant implications for the management contract and the fund's operations, violating the board's duty to oversee financial aspects during advisory contract discussions.
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Andrew Dean, co-director of the Asset Management Unit of the SEC's Enforcement Division, highlighted the need for transparency from advisors. He noted that the lack of accurate information hampers the board's ability to properly evaluate the advisory contract and understand the economic impact of the licensing agreements.
VanEck's agreement with the SEC order admitted his violation of the Investment Company Act and the Investment Advisers Act. The company accepted a cease and desist order, censure, and the required financial penalty without acknowledging or denying the findings.
The announcement follows the company's decision to cancel one of its ETF products, the Bitcoin Strategy ETF, a month ago after a thorough performance evaluation. In an apparent attempt to increase the popularity of its dedicated Bitcoin ETF carrying the symbol HODL, Van Eck noted on February 15 that it was reducing its fees from 0.25% to 0.20% as of February 21. .
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