SEC Imposes $1.75 Million Penalty on VanEck for Failure to Disclose Influencer’s Role in ETF Marketing

The Securities and Exchange Commission (SEC) has announced a significant civil penalty of $1.75 million against VanEck for its failure to disclose a social media influencer’s role in marketing a new Exchange-Traded Fund (ETF). The penalty stems from VanEck’s failure to inform the board overseeing the VanEck Social Sentiment ETF about the influencer’s involvement and the unique fee structure associated with the fund’s growth.

Background: VanEck’s Social Sentiment ETF

VanEck Associates launched the VanEck Social Sentiment ETF, traded on the New York Stock Exchange under the ticker BUZZ, in March 2021. The ETF tracks an index composed of 75 large-cap U.S. stocks that exhibit the highest degree of positive investor sentiment. This sentiment is determined based on content aggregated from various online sources, including social media platforms, news articles, blog posts, and alternative datasets.

SEC Investigation Reveals Lack of Disclosure

The SEC’s investigation uncovered that VanEck Associates, in an effort to boost the ETF’s visibility and success, engaged a well-known social media personality with polarizing views as part of its marketing strategy. The SEC did not disclose the name of the social influencer. VanEck failed to disclose this influencer’s involvement to the Board overseeing the ETF. Additionally, the firm implemented a variable licensing fee structure directly linked to the ETF’s asset size, impacting the compensation of the index provider.

Importance of Disclosure: SEC’s Perspective

Andrew Dean, co-chief of the SEC’s enforcement division’s asset management unit, emphasized the significance of full disclosure in such arrangements. He highlighted that the lack of transparency hindered the board’s ability to assess the economic implications of the influencer’s engagement and its impact on the fund’s management contract. The SEC underscored the importance of transparency and disclosure to ensure proper oversight and decision-making by fund managers and governing bodies.

Settlement and Cease and Desist Order

In response to the charges, VanEck Associates has agreed to settle the allegations by ceasing and desisting from further violations of the Investment Company Act and the Investment Advisers Act. Although the firm did not admit or deny the SEC’s findings, it has agreed to comply with the terms outlined in the SEC’s order. The settlement reflects VanEck’s commitment to addressing the regulatory concerns raised by the SEC and implementing measures to enhance transparency and compliance within its operations.

Implications and Lessons Learned

The SEC’s enforcement action against VanEck underscores the importance of transparency and disclosure in the marketing and management of investment products such as ETFs. Fund managers and financial institutions must adhere to regulatory requirements and provide full disclosure of material information to investors and governing bodies. The settlement serves as a reminder of the consequences of failing to meet these obligations and highlights the need for robust compliance programs and oversight mechanisms within the financial industry. Moving forward, firms should prioritize transparency and integrity in their operations to maintain investor trust and regulatory compliance.