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 the launch of its social media-focused exchange-traded fund (ETF) in 2021.
The SEC imposed a civil penalty on the investment adviser. In a statement released on February 16, the SEC revealed that VanEck 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 enhance the fund’s success through social media and had collaborated with an influential and divisive online personality to increase its appeal.
While the influencer was not explicitly named by the financial watchdog, reports from 2021 had previously linked David Portnoy, the founder of Barstool Sports, to the promotion of the VanEck ETF. The regulator uncovered 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 hidden 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 duty to oversee financial aspects during discussions about the advisory contract.
Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, emphasized the importance of transparency from advisers. He noted that the failure to provide accurate disclosures hindered the board’s ability to properly assess 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 the company’s decision to terminate its Bitcoin Strategy ETF a month ago following a thorough performance evaluation. In an apparent effort to boost the popularity of its dedicated spot Bitcoin (BTC) ETF with the ticker HODL, VanEck indicated on February 15 that it would be reducing its fees from 0.25% to 0.20% starting on February 21.