Van Eck Slapped with $1.75M Fine By SEC Over ETF Launch Secrecy

The U.S. Securities and Exchange Commission (SEC) imposed a civil penalty of $1.75 million on the registered investment adviser, Van Eck Associates Corporation. This penalty resolves allegations that Van Eck did not adequately disclose the participation of a social media influencer in the introduction of its new exchange-traded fund (ETF).

The SEC’s directive discloses that Van Eck Associates launched the VanEck Social Sentiment ETF in March 2021. This initiative aimed to track an index derived from “favorable insights” gathered from social media and various data sources.

Nevertheless, the company neglected to reveal the planned involvement of a prominent and contentious social media influencer in promoting the index alongside the ETF launch.

As per the SEC, the index provider intended to enlist the influencer’s services to enhance the visibility of the index. The company correlated the influencer’s remuneration with a flexible scale connected to the fund’s magnitude. Consequently, as the ETF expanded, the index provider would receive a higher proportion of the management fee disbursed to Van Eck Associates.

Van Eck Associates Faces SEC Penalties

Importantly, Van Eck Associates excluded crucial information regarding the influencer’s participation and the fee arrangement from the ETF’s board during the approval stages for both the fund launch and the management fee.

Highlighting the significance of precise disclosures, Andrew Dean, Co-Chief of the Asset Management Unit within the Enforcement Division, emphasized their crucial role, especially in situations affecting the advisory contract. He pointed out that the oversight by Van Eck Associates restricted the board’s capacity to thoroughly evaluate the situation during a crucial assessment of advisory contracts.

Significantly, Van Eck Associates has agreed to the SEC’s directive, admitting to breaching the Investment Company Act and Investment Advisers Act. Consequently, the company has accepted a cease-and-desist order, a censure, and a financial penalty.

The favorable outcomes of determining that XRP may not qualify as a security in certain instances, as well as the dismissal of the SEC’s legal action against Ripple executives Brad Garlinghouse and Chris Larsen, were positive developments for Ripple.

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