VanEyck Admits ETF Trading Violation, Agrees to SEC Penalty.

VanEyck will pay a $1.75 million fine to settle US Securities and Exchange Commission (SEC) charges related to the 2021 launch of an exchange-traded fund (ETF) focused on social media.

The SEC imposed a civil penalty against the investment adviser. On Feb. 16, the SEC said in a statement that when VanEck Social Sentiment ETF launched in March 2021, VanEck did not fully disclose the involvement of popular social media personalities in marketing the product.

The ETF aims to track the index using “positive impressions” from social media and other data sources. However, the SEC found that VanEck sought to boost the fund's success through social media and partnered with online influencers and divisive personalities to increase its appeal.

Although the financial regulator has not specifically named the influencer, reports from 2021 have previously linked David Portnoy, founder of Barstool Sports, to the launch of the VanEck ETF. The regulator noted an undisclosed detail: the influencer's pay is tied to the fund's growth, ensuring higher compensation as the fund expands.

The SEC has criticized the hidden deal, targeting VanEck for not informing the ETF board of the influencer's intended involvement. This undisclosed arrangement had significant implications for management contracts and fund operations, violating the board's duty to oversee financial matters during consulting contract negotiations.

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Andrew Dean, associate chief of the asset management division of the SEC's enforcement division, stressed the need for transparency from advisers. He pointed out that not providing accurate information is an obstacle for the board to properly evaluate the consultancy contract and understand the economic impact of the licensing agreements.

VanEck pleads guilty to SEC orders for violating the Investment Company Act and the Investment Advisers Act. The company received a cease and desist order, a reprimand and the necessary fine without admitting or denying the results.

The announcement follows the company's decision to discontinue one of its ETF products, the Bitcoin Strategy ETF, a month before an intensive performance review. Carrying a ticket HODL in an apparent attempt to boost the popularity of a niche Bitcoin (BTC) ETF, Van Eck indicated on February 15 that it was lowering its fee from 0.25% to 0.20% effective February 21.

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