A recent settlement between Van Eck Associates Corporation (Van Eck) and the Securities and Exchange Commission (SEC) once again underscores the Commission’s focus on transparency in the securities markets. Van Eck agreed to pay a $1.75 million civil penalty to settle charges that it failed to disclose a social media influencer’s role in the promotion and launch of the Van Eck Social Sentiment ETF (NYSE:BUZZ).

The SEC’s order found that Van Eck launched the ETF to track an index based on “positive insights” from social media and other similar data. The index provider planned to engage a well-known social media influencer to promote the index in connection with the ETF launch.  The influencer’s compensation was attached to a sliding scale based on the size of the fund, with the index provider receiving a greater percentage of the management fee as the fund grew. Van Eck, however, neglected to disclose these details to the ETF’s board when approving the fund launch and management fee structure.

Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit, Andrew Dean, stressed the importance of accurate disclosures, particularly with respect to those matters affecting the advisory contract process. Specifically, Dean stated, “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.”

Because investors rely on disclosures to make informed decisions, accurate disclosures are crucial to ensuring markets remain fair and efficient. For investment advisers, accurate disclosures are a way of building trust with clients and maintaining a reliable reputation in the industry.

Van Eck consented to the entry of the SEC’s order, which found violations of both the Investment Company Act and the Investment Advisers Act. Careful to neither admit nor deny the SEC’s findings, the firm agreed to a cease-and-desist order, a censure, and the $1.75 million monetary penalty.

This settlement shows the importance of full and transparent disclosure in fund promotion, and comes on the back of the SEC’s warning to the crypto industry in its approval of the Bitcoin Spot ETF that “the Commission will fully investigate any fraud or manipulation in the securities markets, including schemes that use social media platforms.”

This enforcement action against Van Eck serves as a cautionary reminder to investment advisers of the importance of full and transparent disclosure, particularly in high-profile fund launches involving social media influencers. As regulations continue to evolve, and scrutiny continues to intensify in the crypto space specifically, advisers must ensure compliance with disclosure obligations to avoid regulatory sanctions and reputational damage. 

Whether based on “positive insights” from social media, or spot prices of bitcoin, Kelman PLLC is here to help ensure your fund is launched and operating in a fully-transparent and compliant manner. If you believe we can be of assistance, schedule a consultation here.