VanEck Pays $1.75 Million to Settle SEC Charges Over Social Media ETF

VanEck Associates Corporation, a registered investment adviser, has agreed to pay a $1.75 million civil penalty to settle charges by the Securities and Exchange Commission (SEC) that it failed to disclose a social media influencer’s role in the launch of its new exchange-traded fund (ETF) in March 2021.

The Social Sentiment ETF

The ETF in question is the VanEck Social Sentiment ETF (NYSE:BUZZ), which tracks an index based on “positive insights” from social media and other data. The index provider informed VanEck that it planned to retain a well-known and controversial social media influencer to promote the index in connection with the launch of the ETF.

The influencer, who has millions of followers on various platforms, posted several tweets and videos endorsing the index and the ETF, and encouraging his fans to invest in it. He also appeared on national television and podcasts to discuss the ETF and its strategy.

The SEC’s Findings

According to the SEC’s order, VanEck failed to disclose the influencer’s planned involvement and the sliding scale fee structure to the ETF’s board in connection with its approval of the fund launch and of the management fee. The sliding scale fee structure meant that as the fund grew, the index provider would receive a greater percentage of the management fee the fund paid to VanEck.

The SEC found that VanEck violated the Investment Company Act and the Investment Advisers Act, which require investment advisers to provide accurate disclosures to fund boards, especially when involving issues that can impact the advisory contract. The SEC also found that VanEck’s disclosure failures 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 VanEck’s advisory contract for the fund.

VanEck’s Settlement

Without admitting or denying the SEC’s findings, VanEck consented to the entry of the SEC’s order, which imposed a cease-and-desist order, a censure, and a $1.75 million civil penalty. VanEck also agreed to take remedial actions, such as enhancing its policies and procedures regarding disclosures to fund boards and investors, and conducting training for its employees on these matters.

VanEck issued a statement saying that it is pleased to resolve this matter and that it is committed to complying with all applicable laws and regulations. VanEck also said that it values its relationship with the ETF’s board and that it will continue to provide high-quality products and services to its clients.

The ETF’s Performance

The VanEck Social Sentiment ETF, which has the ticker symbol BUZZ, has attracted over $400 million in assets under management since its launch. The ETF aims to invest in the 75 most positively mentioned US stocks on social media platforms, such as Twitter, Reddit, and StockTwits. The ETF rebalances its portfolio monthly and has an expense ratio of 0.75%.

The ETF has gained about 13% since its inception, outperforming the S&P 500 index, which has risen about 10% in the same period. However, the ETF has also faced some criticism and skepticism from analysts and investors, who question the reliability and validity of its methodology and data sources. Some also argue that the ETF is prone to manipulation and volatility, as social media sentiment can change quickly and unpredictably.