VanEck Fined $1.75M by SEC Over Social Media-Focused ETF Launch Controversies
Summary:
VanEck Associates Corporation agrees to pay a $1.75 million fine to the US Securities and Exchange Commission (SEC) over charges related to its 2021 launch of a social media-focused exchange-traded fund (ETF). The SEC alleges that VanEck failed to fully disclose the role of a notable social media personality in marketing the product. This undisclosed arrangement had substantial implications for the fund's management contract and operations. VanEck admits to the violations, accepting a cease-and-desist order, public censure, and the financial penalty, without affirming or denying the findings.
In a resolution with the United States Securities and Exchange Commission (SEC), VanEck Associates Corporation is set to part with a fine of $1.75 million. This sanction comes in line with charges surrounding the company's 2021 inauguration of its social media-centric exchange-traded fund (ETF) and is described as a civil penalty. The SEC, in a statement released on the 16th of February, hinted that VanEck withheld explicit information about the involvement of a well-known social media figure in the promotional campaigns for the new ETF, during its launch in March of 2021.
The ETF was designed to echo an index resulting from "positive insights" drawn from social media alongside other data sources. In addition to this, the SEC found out that VanEck made use of the services of a divisive, yet powerful online figure during its efforts to popularize the fund on social media platforms. The identity of the influential personality was not directly stated by the regulatory body but previous reports from 2021 have suggested a connection of Barstool Sports' founder, David Portnoy, with the promotion of VanEck's ETF.
Furthermore, the SEC highlighted that compensation for the influencer was calculated based on the growth of the fund, with larger rewards for greater expansion. The watchdog identified this secrecy as a flaw and centered criticism on VanEck's inability to keep the ETF's managing board informed about the influencer's stake in the operation. This secret setup had notable repercussions on the contractual and operational aspects of the fund and compromised the board's mandate to monitor financial discussions relating to advisory contracts.
Speaking on the issue, Andrew Dean, co-chair of the SEC Enforcement Division’s Asset Management Unit emphasized the importance of transparency on the part of advisers. He called attention to the inability of the board to adequately gauge the advisory contract or comprehend the economic ramifications of the licensing agreements due to deficient disclosures.
After admitting to contravening the Investment Company Act and Investment Advisers Act according to the SEC’s order, VanEck consented to a cease-and-desist order, public reprimand, and the stipulated fine. The company did this without either admitting or refuting the findings.
Recently, VanEck took a decision to discontinue one of its ETFs, the Bitcoin Strategy ETF, following careful evaluation of its performance. Coinciding with this, the company also indicated on February 15, that it was cutting its fee from 0.25% to 0.20% as from February 21, in an effort to boost the attractiveness of its dedicated Bitcoin ETF that operates under the HODL ticker.
Published At
2/18/2024 12:27:39 PM
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