Securities Regulation Daily Wrap Up, ENFORCEMENT—Adviser fined $1.75M for failing to disclose influencer’s role in ETF, (Feb 20, 2024)
Organizations Mentioned:Van Eck Associates Corp.
The fund’s board of trustees did not know the full extent of a controversial influencer’s involvement in the ETF.
The SEC charged an investment adviser with failing to disclose a social media influencer’s role in the launch of a new ETF. The provider of the index tracked by the ETF planned to retain and incentivize a controversial influencer to promote the index, but the adviser did not disclose all these details to the ETF’s board. The adviser agreed to pay a $1.75 million penalty and be censured (In the Matter of Van Eck Associates Corporation, Release No. IC-35132, February 16, 2024).
The respondent, Van Eck Associates Corporation, launched the VanEck Social Sentiment ETF in March 2021. The ETF tracks an index of stocks with “positive insights” based on social media and other data.
The provider of this index informed Van Eck that it planned to retain a social media influencer (David Portnoy) to promote the index. In order to compensate Portnoy, the index provider negotiated with Van Eck for a larger percentage of the licensing fee when the ETF met certain thresholds.
However, Van Eck did not disclose the full arrangement to the independent trustees of the VanEck ETF Trust. The board did not know of Portnoy’s involvement until a few days prior to the ETF launch, and even then, they did not have the full picture of the licensing arrangement or Portnoy’s involvement and compensation. They also did not know that Portnoy was a controversial figure, creating brand risk for the ETF.
As a result of these violations, Van Eck violated the disclosure obligations of Investment Company Act Section 15(c), which requires an adviser to an investment company to furnish enough information for the fund’s directors to evaluate the terms of any advisory contract. “Fund boards rely on advisers to provide accurate disclosures, especially when involving issues that can impact the advisory contract, known as the 15(c) process,” explained Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.
Dean continued, “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.”
Van Eck also violated Sections 206(2) and 206(4) of the Advisers Act, which prohibit fraud and deceit and require policies and procedures, respectively.
To settle the charges, Van Eck agreed to a cease-and-desist order censuring it and requiring it to pay a civil penalty of $1.75 million.
This is Release No. IC-35132.
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