A U.S. fund manager who didn’t disclose that an influencer was paid to hype up the launch of its new social media-focused ETF has been sanctioned by regulators.
The U.S. Securities and Exchange Commission (SEC) settled charges with investment advisory firm Van Eck Associates Corp., which agreed to pay a US$1.75-million penalty to cease and desist its violations, and be censured.
The firm settled the charges without admitting or denying the allegations that it failed to disclose an influencer’s role in the launch of its VanEck Social Sentiment ETF, which was created to track the BUZZ NextGen AI US Sentiment Leaders Index based on “positive insights” from social media and other data.
According to the SEC’s order, the index provider hired an influencer to promote the index in connection with the launch of the ETF.
While the regulator’s order doesn’t name the influencer, the ETF’s launch was announced by Dave Portnoy, founder of Barstool Sports, back in 2021.
“To incentivize the influencer’s marketing and promotion efforts, the proposed licensing fee structure included a sliding scale linked to the size of the fund so, as the fund grew, the index provider would receive a greater percentage of the management fee,” the SEC alleged.
However, this arrangement was not disclosed to the ETF’s board, the regulator alleged.
“Fund boards rely on advisers to provide accurate disclosures, especially when involving issues that can impact the advisory contract,” said Andrew Dean, co-chief of the SEC enforcement division’s asset management unit, in a 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,” he added.