Lack Of Disclosure Costs VanEck Almost $2 Million Fine In SEC’s ETF Investigation

In a recent development, VanEck, a registered investment adviser and issuer of Bitcoin Exchange Traded Funds (ETFs), has settled with the US Securities and Exchange Commission (SEC). 

The company has agreed to pay a civil penalty of $1.75 million to settle charges related to its failure to disclose the involvement of a social media influencer in the launch of its Social Sentiment ETF.

SEC Finds VanEck Guilty

According to the SEC’s order, VanEck launched the VanEck Social Sentiment ETF (BUZZ) in March 2021. The ETF was designed to track an index based on “positive insights” from social media and other data. 

The index provider informed VanEck Associates that they intended to engage a “well-known and controversial” social media influencer to promote the index during the ETF’s launch. 

As part of the influencer’s compensation structure, they would receive a licensing fee linked to the fund’s size. This fee would increase proportionally as the fund’s assets grew, granting the index provider a larger share of the management fee paid to VanEck Associates.

However, the SEC’s order found that the asset manager failed to disclose the influencer’s planned involvement and the sliding scale fee structure to the ETF’s board when seeking approval for the fund launch and the management fee. 

According to the SEC, this lack of disclosure limited the board’s ability to evaluate the economic impact of the licensing arrangement and the influencer’s participation as they considered VanEck’s advisory contract for the fund.

Andrew Dean, Co-Chief of the SEC’s Enforcement Division’s Asset Management Unit, emphasized the importance of advisers’ accurate disclosures, particularly in matters that can impact the advisory contract. The SEC official noted that VanEck’s failure to disclose these details regarding the high-profile fund launch hindered the board’s decision-making.

Without admitting or denying the SEC’s findings, the now Bitcoin Spot ETF issuer consented to the entry of the SEC’s order, which found that the company violated the Investment Company Act and Investment Advisers Act. In addition to the $1.75 million civil penalty, VanEck has agreed to a cease-and-desist order and will implement measures to prevent similar disclosure failures.

Fee Cut For HODL Bitcoin ETF

As competition in the spot Bitcoin ETF market intensifies, fee cuts and steady inflows dominate the landscape. In this regard, VanEck recently announced a fee reduction for its new spot Bitcoin ETF, HODL.

Starting February 21st, the management fee will be lowered from 0.25% to 0.20%, signaling the ongoing fee wars among ETF issuers.

Looking at the overall Bitcoin ETF market, analytics firm SoSo Value data shows that the spot Bitcoin ETF market continues attracting significant investor interest. 

On February 15, the market saw a total net inflow of $477 million, marking the fifteenth consecutive trading day of net inflows. However, it’s worth noting that Grayscale’s ETF, GBTC, experienced a net outflow of $174 million on the same day.

Among the Bitcoin spot ETFs, BlackRock’s IBIT emerged as the leader in net inflows on February 15th. The ETF recorded a daily net inflow of $330 million, showcasing its strong appeal to investors. IBIT has garnered a total historical net inflow of $5.17 billion to date, solidifying its position as a significant player in the market.

Featured image from Shutterstock, chart from TradingView.com