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VanEck, after launching a social media-focused exchange-traded fund (ETF) in 2021, will pay a $1.75 million fine due to accusations brought by the United States Securities and Exchange Commission (SEC). The SEC revealed in a public statement on February 16 that during the launch of the VanEck Social Sentiment ETF in March 2021, VanEck did not fully disclose the involvement of a prominent social media personality in marketing the product.
Notable Accusation Against VanEck
The ETF aimed to track an index using positive insights gathered from social media and other data sources. However, the SEC discovered that VanEck attempted to boost the fund’s success through social media and collaborated with an influential and divisive online personality to enhance its appeal.
Although the financial watchdog did not explicitly name the influencer, reports from 2021 had previously associated David Portnoy, the founder of Barstool Sports, with the promotion of the VanEck ETF. The regulator noticed an undisclosed detail: the influencer’s fee was tied to the fund’s growth, guaranteeing higher compensation as the fund expanded.
The SEC criticized the secret agreement for not informing the ETF’s board of directors about the intended participation of the influencer. This undisclosed agreement had significant impacts on the management contract and fund operations, violating the board’s duty to oversee financial matters during advisory contract negotiations.
SEC Official’s Statement Follows Promptly
SEC Co-Chief of the Asset Management Unit of the Enforcement Division, Andrew Dean, emphasized the need for transparency from advisors. He stated that the lack of proper disclosures prevented the board of directors from accurately evaluating the advisory contract and understanding the economic impact of licensing agreements.
VanEck’s settlement with the SEC’s order acknowledged violations 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 admitting or denying the findings.
The announcement came after the company decided to terminate its Bitcoin Strategy ETF, one of its ETF products, following a comprehensive performance review a month earlier. Van Eck also signaled a fee reduction for its specialized spot Bitcoin ETF, which carries the acronym HODL, from 0.25% to 0.20% starting February 21, as part of an effort to boost the fund’s popularity.
