In a notable enforcement action underscoring the importance of transparency in financial marketing, the Securities and Exchange Commission (SEC) today announced a settlement with registered investment adviser Van Eck Associates Corporation. The firm has agreed to pay a $1.75 million civil penalty to resolve charges related to its failure to disclose the involvement of a social media influencer in the launch of its exchange-traded fund (ETF), the VanEck Social Sentiment ETF (NYSE:BUZZ).
Launched in March 2021, the VanEck Social Sentiment ETF was designed to track an index based on “positive insights” from social media and other data sources. The index provider had planned to engage a well-known, albeit controversial, social media influencer to promote the index coinciding with the ETF’s launch. A key aspect of the influencer’s compensation was a sliding scale fee structure tied to the fund’s size. As the ETF grew, the index provider would receive an increasing percentage of the management fee paid to Van Eck Associates.
However, the SEC’s order reveals that Van Eck Associates should have informed the ETF’s board about the influencer’s planned participation and the details of the fee structure during the approval process for the fund’s launch and the management fee arrangement. This omission deprived the board of critical information necessary to assess the economic implications of the licensing agreement and the influencer’s role, impacting its ability to make fully informed decisions regarding the advisory contract for the fund.
Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit, emphasized the significance of accurate disclosures to fund boards, particularly concerning factors that could influence the advisory contract, known as the 15(c) process. “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 stated.
By consenting to the SEC’s order, Van Eck Associates has not admitted or denied the findings but has agreed to a cease-and-desist order and a censure in addition to the monetary penalty. This settlement highlights the SEC’s ongoing commitment to ensuring that investment advisers uphold the highest standards of disclosure and transparency, particularly when engaging in practices that could potentially influence investor decisions and perceptions.