VanEck Agrees to $1.75 Million SEC Fine Over Social Media ETF Promotion

VanEck has agreed to pay a hefty $1.75 million fine to settle charges brought by the United States Securities and Exchange Commission (SEC) related to its 2021 launch of a social media-focused exchange-traded fund (ETF).

The SEC revealed on February 16th that during the March 2021 launch of the VanEck Social Sentiment ETF, VanEck did not disclose a compensation arrangement with a social media personality hired to promote the BUZZ ETF.

Although the influencer wasn't named by the SEC, reports suggest it could be Dave Portnoy, the founder of Barstool Sports, who boasted over three million followers on the platform during the ETF's launch.

While the role of influencers in marketing products, including ETFs, is expanding, the lack of proper disclosures landed VanEck in hot water with the SEC.

Sumit Roy, a senior ETF analyst at etf.com, highlighted that it was the absence of disclosures rather than influencer marketing itself that led to VanEck's trouble.

Roy emphasized that influencer marketing is increasingly effective compared to traditional advertising methods.

The ETF, which aimed to capitalize on "positive insights" from social media and other data sources, came under scrutiny when it was discovered that VanEck had sought to bolster the fund's success through social media channels, enlisting the help of an influential online personality.

VanEck Faces Criticism for Paying for BUZZ

The SEC condemned this hidden agreement, focusing on VanEck's failure to disclose the influencer's intended involvement to the ETF's board.

This undisclosed arrangement had significant implications for the management contract and fund operations, violating the board's duty to oversee financial aspects during advisory contract discussions.

Critics like April Rudin, founder and CEO of The Rudin Group, questioned the efficacy of using an influencer like Dave Portnoy for promoting ETFs.

Rudin criticized VanEck's approach as poorly planned and executed, highlighting the need for clear objectives when engaging influencers for marketing purposes.

Andrew Dean, co-chief of the SEC Enforcement Division's Asset Management Unit, stated the importance of transparency from advisers. He highlighted that the failure to provide accurate disclosures impedes the board's ability to properly assess advisory contracts and understand the economic impact of licensing agreements.

VanEck,agreeing to the SEC's order, acknowledged its violation of the Investment Company Act and Investment Advisers Act. The company accepted a cease and desist order, censure, and the prescribed financial penalty without admitting or denying the findings.

VanEck, managing $67.2 million across 68 ETFs, has not yet commented on the SEC penalty. The BUZZ ETF, which utilizes artificial intelligence to select stocks mentioned positively online, currently holds $58.9 million in assets. 

Despite experiencing a surge in value this year, it remains below its peak reached in 2021. In a bid to boost the popularity of its dedicated spot Bitcoin BTC ETF carrying the ticker HODL, VanEck indicated on February 15th that it would reduce its fees from 0.25% to 0.20% starting February 21st.