VanEck has agreed to pay a fine of $1.75 million to settle charges brought by the United States Securities and Exchange Commission (SEC) regarding its launch of a social media-focused exchange-traded fund (ETF) in 2021.
In a statement released on February 16, the SEC announced that it had imposed a civil penalty on VanEck, stating that the company had failed to fully disclose the involvement of a prominent social media personality in the marketing of the VanEck Social Sentiment ETF during its launch in March 2021.
The ETF aimed to track an index based on positive insights from social media and other data sources. However, the SEC discovered that VanEck had sought to increase the fund’s success through social media promotion and had collaborated with an influential and controversial online personality to enhance its appeal.
While the influencer was not explicitly named by the SEC, reports from 2021 had previously linked David Portnoy, founder of Barstool Sports, to the promotion of the VanEck ETF. The regulator identified an undisclosed detail: the influencer’s fee was tied to the growth of the fund, ensuring higher compensation as the fund expanded.
The SEC criticized this undisclosed arrangement, focusing on VanEck’s failure to inform the ETF’s board about the influencer’s intended involvement. This undisclosed agreement had significant implications for the management contract and fund operations, violating the board’s responsibility to oversee financial matters during advisory contract discussions.
Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, emphasized the importance of transparency from advisors. He noted that the failure to provide accurate disclosures hampers the board’s ability to properly evaluate the advisory contract and understand the economic impact of licensing agreements.
VanEck accepted the SEC’s order, acknowledging its violation of the Investment Company Act and Investment Advisers Act. The company agreed to a cease and desist order, censure, and the required financial penalty without admitting or denying the findings.
This announcement comes after VanEck’s recent decision to terminate its Bitcoin Strategy ETF, following a comprehensive performance evaluation. In an apparent effort to boost the popularity of its dedicated Bitcoin ETF, with the ticker HODL, VanEck announced on February 15 that it would lower its fees from 0.25% to 0.20% starting from February 21.