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The U.S. Securities and Exchange Commission (SEC) has imposed a hefty $1.75 million civil penalty on prominent investment adviser Van Eck Associates Corporation.
In a Feb. 16 statement, the SEC disclosed that during Van Eck’s 2021 launch of a new exchange-traded fund (ETF), the VanEck Social Sentiment ETF, the investment firm did not fully disclose the involvement of a well-known social media personality in the marketing of the product.
SEC is making VanEck pay a $1.75m fine bc they didn’t disclose to fund board that “well-known and controversial” social media influencer Dave Portnoy was getting paid by the index co on sliding scale in order to help incentivize promotion of their ETF $BUZZ pic.twitter.com/C9Ke2bgbWM
— Eric Balchunas (@EricBalchunas) February 16, 2024The product was designed to track an index harnessing “positive insights” from the vast social media landscape and other data pools.
However, the SEC found that in their pursuit of leveraging social media to spur the fund’s growth, Van Eck entwined with a potent and polarizing online personality, whose task was to amplify the fund’s allure.
The undisclosed detail that caught the regulator’s eye was the fee structure offered to the influencer—a sliding scale connected to the fund’s growth, ensuring the influencer’s compensation increased as the fund expanded.
While the financial watchdog refrained from naming the influencer directly in its statement, past reports from 2021 have linked David Portnoy, the founder of Barstool Sports, to the promotion of the Van Eck ETF.
The SEC criticized the clandestine arrangement, specifically Van Eck’s omission to inform the ETF’s board about the influencer’s planned participation.
The arrangement had significant implications for the management contract and the fund’s operations but was kept concealed, impinging on the board’s obligation to oversee the fund’s financial parameters during its deliberation on the advisory contract.
Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, emphasized the expectation of transparency from advisers, stating that the failure to provide accurate disclosures obstructs the board’s capability to fairly evaluate the advisory contract and consider the economic impact of any licensing agreements.
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.
Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management UnitThe SEC’s stance is that Van Eck’s alleged obfuscation of details severely tethered the board’s ability to gauge the economic ramifications of the licensing contract with the index provider and the intended cachet the well-known influencer would bring to the ETF.
Van Eck has since consented to the entry of the SEC’s order, conceding to its oversight in violating the Investment Company Act and Investment Advisers Act. It has also agreed to a cease-and-desist order and censure without admitting to or denying the findings, along with the mandatory monetary penalty.
The news comes barely a month after the company announced that it would dissolve one of its ETF products, the Bitcoin Strategy ETF, following an extensive evaluation of its performance.
In an apparent attempt to boost the popularity of its dedicated Bitcoin ETF carrying the ticker HODL, Van Eck signaled on Feb. 15 that it was lowering its fees from 0.25% to 0.20% as of Feb. 21.
The investment firm recently shared projections for the crypto market in 2024, foremost among them being an anticipation that Bitcoin (BTC) will soar to unprecedented highs towards the end of 2024, propelled by a predicted U.S. economic recession and potential regulatory reforms succeeding the forthcoming presidential election.
In its forecast, Van Eck did not foresee Ethereum (ETH) usurping Bitcoin. However, it projected that it would exceed the performance of leading tech equities.
Moreover, Van Eck foresees a reshuffling among cryptocurrency exchanges, predicting that rivals like Coinbase and others could overtake Binance’s top spot by volume.
