Van Eck Associates has agreed to pay a $1.75 million civil penalty to settle SEC charges that it failed to disclose a social media influencer's role in connection with a 2021 ETF launch, the SEC said Feb. 16.
According to the SEC's order, the proceedings stem from Van Eck's disclosure failures concerning the March 2021 launch of the VanEck Social Sentiment ETF.
While the SEC's order did not identify the influencer, 2021 media reports indicated that Barstool Sports founder David Portnoy promoted the ETF. Van Eck obtained an exclusive license to use the BUZZ NextGen AI US Sentiment Leaders Index in relation to the fund, the regulator's order said.
To incentivize Portnoy's marketing and promotional efforts, the index provider, among other things, asked for a change to the proposed licensing fee structure that would give the index provider a bigger percentage of the fee when the ETF's assets under management met certain thresholds, the order said.
Also according to the order, the index provider represented that, as the influencer would get a share of the licensing fee that Van Eck would pay to the index provider, "a sliding scale licensing fee would incentivize the Influencer to raise awareness of the BUZZ Index and would offer the Influencer a significant monetary incentive if the … ETF reached sufficient scale."
However, Portnoy's planned involvement and details regarding the anticipated licensing arrangement weren't disclosed to the ETF's board in connection with its approval to organize the ETF and approval of the management fee, the order said.
"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," said Andrew Dean, co-chief of the enforcement division's asset management unit at the SEC, in a news release.
"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," Dean said.
Van Eck agreed to the entry of the SEC's order finding that it had violated the Investment Company Act and Investment Advisers Act, the release said. Without admitting or denying the regulator's findings, Van Eck agreed to a cease-and-desist order and a censure in addition to the $1.75 million penalty.
A spokesman for Van Eck declined to comment.
