SEC Slaps VanEck with $1.75M Fine over ETF Marketing Violation

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VanEck Associates Corporation, an investment adviser registered with regulatory authorities, has agreed to a payment of $1.75 million in civil penalties to resolve allegations by the Securities and Exchange Commission (SEC). The fine involves its failure to disclose the participation of a social media influencer in the introduction of a new exchange-traded fund (ETF).

According to a statement released by the SEC, the investment adviser was fined for failing to fully disclose the involvement of a prominent social media personality in the marketing of the VanEck Social Sentiment ETF, launched in March 2021.

Reason for SEC Fines on VanEck

Van Eck Associates launched the VanEck Social Sentiment ETF (NYSE: BUZZ) to follow an index that utilizes optimistic signals sourced from social media and additional data.

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Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit, Andrew Dean emphasized the importance of accurate disclosures when he stated, “Van Eck Associates’ disclosure failures concerning this high-profile fund launch limited the board’s ability to consider the economic impact of the licensing arrangement and the involvement of a prominent social media influencer as it evaluated Van Eck Associates’ advisory contract for the fund.”

Disclosure Obligations

The ETF aimed to mimic an index shaped by “positive insights” derived from social media and diverse data sources. However, the SEC found that VanEck tried to improve the fund’s performance by leveraging social media promotion and collaborating with a prominent online personality to increase its appeal.

The suggested remuneration plan for the influencer’s marketing contributions entailed a flexible arrangement tied to the fund’s size, whereby the index provider would receive an increased proportion of the management fee with the fund’s expansion.

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Nonetheless, Van Eck Associates allegedly neglected to reveal both the influencer’s intended participation and the fee framework to the ETF’s board during the approval process for the fund’s initiation and the management fee.

Implications for ETF Marketing

Meanwhile, Van Eck Associates has agreed to the SEC’s order, acknowledging breaches of the Investment Company Act and Investment Advisers Act. Although the company does not admit or deny the SEC’s findings, it has consented to a cease-and-desist order, a censure, and the imposition of a monetary penalty.

This settlement serves as a cautionary tale for investment advisers and ETF issuers regarding the importance of transparency in marketing practices particularly as demands continue with a huge jump expected in months. Regardless of the SEC fine, VanEck looks forward to a significant $2.4 billion inflow into Bitcoin ETF products in the first quarter of 2024.

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