VanEck fined for disclosure failures over ETF promoted by Dave Portnoy

Asset manager VanEck has agreed to pay the US Securities and Exchange Commission nearly $2mn to settle charges that fund overseers were left in the dark about the decision to pay Dave Portnoy, the founder of Barstool Sports, to promote an exchange traded fund that launched in March 2021.

The regulator’s case comes as part of a broader crackdown on celebrities who promote or influence the price of financial products and cryptocurrencies. Portnoy used social media posts and interviews to back the VanEck Social Sentiment ETF (BUZZ), saying that he invested $2mn in the fund after it debuted and promoting it on cable news on its launch day.

But VanEck failed to tell the board in charge of supervising the ETF that Portnoy was being paid an undisclosed amount by BUZZ Indexes, a subsidiary of Toronto-based hedge fund Periscope Capital, which was behind the index tracked by the Van Eck ETF, the SEC order said. BUZZ tracks 75 US large-cap stocks that “exhibit the highest degree of positive investor sentiment and bullish perception” based on social media and news articles, according to VanEck’s description of the fund.

VanEck had a sliding-scale licensing fee deal with BUZZ that would become more lucrative for BUZZ as the ETF attracted more assets.

The SEC order does not name Portnoy but describes the involvement of “a well-known and controversial social media influencer” who is “known for commenting on sports, investing, and other topics”. People familiar with the case confirmed that he was the influencer.

Portnoy’s involvement and the details of the licensing agreement were not disclosed to the independent board members of VanEck’s ETF trust when they approved the fund and its management fee of 0.75 per cent for launch, the SEC said. The board only learned of the terms and Portnoy’s involvement as a pitchman “days prior to the launch”.

According to the SEC, between December 2020 and June 2021, VanEck misrepresented and failed to share “material information” with the board about controversies linked to Portnoy as well as his involvement and compensation.

Portnoy has built Barstool Sports into a digital sports media empire, through which he has gained a large online following. He has also been a leading figure among retail investors via his “Davey Day Trader” persona. But he has attracted controversy in the past, including for comments about women and using racist language.

VanEck, which did not admit or deny the SEC’s findings, declined to comment. Portnoy and BUZZ Indexes did not immediately respond to requests for comment. Neither were named as defendants in the SEC action. The BUZZ ETF currently has $76mn in assets.

Andrew Dean, co-chief of the SEC enforcement division’s asset management unit, said in a statement: “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.”

The case is the SEC’s latest move against “finfluencers” who use social media to promote investments, a crackdown that has especially focused on cryptocurrencies. Kim Kardashian is the most prominent among the influencers who have been fined for failing to disclose how much they were being paid to promote cryptocurrencies and financial products, and registered investment adviser Fundrise was fined $250,000 last year for failing to disclose that it had paid social media personalities to help solicit clients.