The SEC Imposes $1.75 Million Fine on Van Eck for Involving Influencer in ETF Marketing
The U.S. Securities and Exchange Commission (SEC) has recently fined Van Eck Associates Corporation, a prominent investment adviser, with a hefty $1.75 million civil penalty. The penalty was imposed due to Van Eck’s failure to disclose the involvement of a well-known social media personality in the marketing of their new exchange-traded fund (ETF), the VanEck Social Sentiment ETF.
Undisclosed Fee Structure and Influencer’s Role
The VanEck Social Sentiment ETF was designed to track an index that utilized “positive insights” from various social media platforms and data pools. In an attempt to leverage social media for the fund’s growth, Van Eck collaborated with a powerful online personality whose task was to amplify the fund’s appeal.
However, the SEC found that Van Eck failed to fully disclose the fee structure offered to the influencer. The influencer’s compensation was tied to the fund’s growth, ensuring that their payment increased as the fund expanded. While the SEC did not explicitly name the influencer in their statement, previous reports have linked David Portnoy, the founder of Barstool Sports, to the promotion of the Van Eck ETF.
Criticism of Concealed Arrangement
The SEC criticized Van Eck for keeping this arrangement concealed and failing to inform the ETF’s board about the influencer’s planned participation. This undisclosed detail had significant implications for the management contract and operations of the fund. It hindered the board’s ability to oversee the fund’s financial parameters during its evaluation of the advisory contract.
Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, emphasized the importance of transparency from advisers. He stated 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’s Consent and Cease-and-Desist Order
Van Eck has consented to the SEC’s order, acknowledging its violation of the Investment Company Act and Investment Advisers Act. The company has agreed to a cease-and-desist order, censure, and a monetary penalty of $1.75 million. However, Van Eck has neither admitted to nor denied the findings presented by the SEC.
This penalty comes just weeks after Van Eck announced the dissolution of one of its ETF products, the Bitcoin Strategy ETF, due to its performance evaluation. In an effort to boost the popularity of its dedicated Bitcoin ETF (HODL), Van Eck also reduced its fees from 0.25% to 0.20% as of February 21.
Vision for the Crypto Market
In addition to these developments, Van Eck recently shared its projections for the crypto market in 2024. The company anticipates that Bitcoin (BTC) will reach unprecedented highs by the end of 2024, driven by a predicted U.S. economic recession and potential regulatory reforms following the upcoming presidential election.
While Van Eck does not foresee Ethereum (ETH) surpassing Bitcoin, it expects ETH to outperform leading tech equities. The company also predicts a reshuffling among cryptocurrency exchanges, suggesting that rivals such as Coinbase could potentially overtake Binance’s top spot in terms of trading volume.
Conclusion
The SEC’s imposition of a $1.75 million civil penalty on Van Eck Associates Corporation highlights the importance of transparency and accurate disclosures in the financial industry. By involving an influencer without fully disclosing their fee structure, Van Eck impeded the board’s ability to evaluate the economic impact of the licensing contract and the influencer’s role in promoting the ETF. As regulatory scrutiny continues to increase in the crypto space, companies must prioritize compliance and transparency to maintain trust and avoid regulatory penalties.
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