VanEck Sanctioned By SEC For Error In ETF Marketing

Jimmy Aki
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On February 16th, the Securities and Exchange Commission (SEC) announced that it fined VanEck, an investment management firm. The fine was a $1.75 million civil penalty settlement.

This settlement would resolve allegations of failure to disclose the involvement of a social media influencer in the introduction of its new exchange-traded fund (ETF).

VanEck Penalised For Violating Investment Company Act

According to the SEC’s press release, “Van Eck Associates” introduced the VanEck Social Sentiment ETF in March 2021. The aim was to monitor an index centered on favorable sentiments from social media and other sources.

The entity responsible for this index informed VanEck of its intention to engage a prominent but controversial social media influencer. The influencer would endorse the index alongside the ETF launch.

However, as indicated in the SEC’s order, the firm should have disclosed this information to the ETF’s board when seeking approval. This information includes the influencer’s planned participation, the tiered fee arrangement for the fund’s launch, and the associated management fee.

Meanwhile, the proposed fee structure involved a variable rate linked to the ETF’s size to encourage the influencer’s promotional efforts. This meant that as the fund grew, the index provider would receive a larger percentage of the management fee.

While the SEC didn’t explicitly name the influencer, previous reports from 2021 have tied David Portnoy, the founder of Barstool Sports, to the promotion of the VanEck ETF.

The regulator also observed an undisclosed aspect: the influencer’s compensation was linked to the fund’s growth. This ensured higher remuneration as the fund expanded.

Despite SEC findings, the investment firm neither admitted nor denied but agreed to a cease-and-desist order, censure, and financial penalty.

Furthermore, VanEck consented to the SEC’s order, acknowledging its violation of the Investment Company Act and Investment Advisers Act.

Meanwhile, Andrew Dean, co-chief of the SEC’s Enforcement Division’s Asset Management Unit, emphasized the importance of transparency from advisers.

Dean highlighted that the board’s ability to evaluate the advisory contract effectively is necessary to provide accurate disclosures. He added that this also hampers their comprehension of the economic implications of the licensing agreement.

Clampdown On “Finfluencers” Marketing

The SEC’s latest decision comes amidst growing concerns over the lack of transparency and potential for market manipulation within the rising influencer industry.

The regulatory body’s scrutiny primarily targets influencers promoting financial products (known as “finfluencers”), including cryptocurrencies, stocks, and other investments, without disclosing their financial interests properly.

As part of the action on influencers, in August 2022, the US SEC released an investor advisory regarding investment fraud via social media.

Similarly, the UK’s Financial Conduct Authority cautioned “influencers” about the dangers of endorsing illicit get-rich-quick schemes.

Furthermore, despite unclear regulatory guidelines on endorsing emerging digital assets, the SEC has fined celebrities for unfulfilled reporting obligations.

For instance, in October 2022, Kim Kardashian was charged by the SEC and resolved with a $1.3 million fine. This was for promoting EthereumMax on Instagram without disclosing a payment of $250,000 she had received.

The US SEC also initiated civil charges against eight celebrities in the same year. They were accused of unlawfully promoting Tronix (TRX) and BitTorrent (BTT) cryptocurrencies without revealing their financial compensation.

The implicated celebrities included Lindsay Lohan, internet personality Jake Paul, musician Soulja Boy, singer Austin Mahone, and others.

Except for Soulja Boy and Mahone, the celebrities involved in the scandal collectively paid over $400,000 to settle the charges, neither admitting nor denying the SEC’s findings.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.