VanEck has agreed to pay a fine of $1.75 million to settle charges brought by the U.S. Securities and Exchange Commission (SEC) regarding its 2021 launch of a social media-focused exchange-traded fund (ETF). The SEC, responsible for imposing civil penalties against investment advisers, announced on February 16 that VanEck failed to fully disclose the involvement of prominent social media personalities in marketing the VanEck Social Sentiment ETF upon its launch in March 2021.
The ETF, designed to track an index utilizing positive insights gathered from social media and other data sources, came under scrutiny when it was revealed that VanEck attempted to boost the fund's success through social media promotion and collaboration with a notable online figure. While the SEC did not specifically name the influencer, reports from 2021 had previously linked Barstool Sports founder David Portnoy to the promotion of the VanEck ETF. The undisclosed arrangement involved influencer fees tied to the fund's growth, ensuring higher compensation as the fund expanded.
Criticism from the SEC centered on VanEck's failure to disclose the influencer's involvement to the ETF's board of directors, thereby impacting the management contract and fund operations. This lack of transparency violated the board's duty to oversee financial aspects during advisory contract discussions. Andrew Dean, co-director of the SEC’s Enforcement Division’s Asset Management Section, emphasized the importance of advisors providing accurate disclosures, as failure to do so impedes the board's ability to evaluate consulting contracts and understand the economic ramifications of licensing agreements.
In response to the SEC's order, VanEck admitted to violations of the Investment Company Act and the Investment Advisers Act. The company accepted the cease-and-desist order, reprimand, and financial penalties without admitting or denying the findings. Notably, VanEck recently opted to discontinue one of its ETF products, the Bitcoin Strategy ETF, following a comprehensive performance review. Additionally, in a move to enhance the appeal of its dedicated spot Bitcoin ETF, which trades under the ticker HODL, VanEck announced a reduction in fees from 0.25% to 0.20%, effective February 21.
