VanEck Slapped with SEC Fine—A Prelude to Stricter Securities Regulations in Bitcoin ETF?

Key Takeaways

• SEC imposed a $1.75M fine on VanEck for disclosure failures setting a precedent for Bitcoin ETFs. 
• Regulatory action on omissions and disclosures might place crypto next to traditional products. 
• Banking institutions are lining up to secure a share of the Bitcoin ETF revenue as the regulatory framework continues to develop.

The US Securities and Exchange Commission (SEC) has imposed  a $1.75M fine on Bitcoin ETF issuer VanEck. The action accuses VanEck of failing to adequately disclose the engagement of a “well-known and controversial” social media influencer who was paid by the index company to promote the ETF.

The omission and disclosure requirements are expected to position Bitcoin ETFs alongside traditional financial instruments. Meanwhile, their popularity and the billions of dollars flowing into the Bitcoin funds continue to maintain institutional interest.

VanEck’s Omission Led to SEC Action

The VanEck Social Sentiment ETF (NYSE:BUZZ), launched in March 2021, was designed to track an index based on “positive insights” from social media. The index provider, aiming to boost the ETF’s launch, hired influencer Dave Portnoy under a licensing fee structure. The arrangement offered Portnoy a greater percentage of the management fee as the fund grew. However, Van Eck Associates did not disclose these arrangements or the influencer’s involvement to the ETF’s board during the fund’s approval process or when setting the management fee.

Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, highlighted the importance of fund boards receiving accurate disclosures, especially concerning advisory contracts. He pointed out that Van Eck Associates’ failure to provide this information limited the board’s ability to assess the economic implications of the arrangement.

The SEC revealed in the press release that VanEck has agreed to a cease-and-desist order and the financial penalty, without admitting or denying the findings. This case can set a precedent for new Bitcoin ETFs to set proper disclosure guidelines for the crypto market.

Bitcoin ETFs and Regulatory Uncertainty

The fine against Van Eck Associates comes at a time when the regulatory environment for crypto-related investment products remains uncertain. The SEC’s cautious approach to Bitcoin ETFs and other products has faced scrutiny.

Meanwhile, Bloomberg  revealed in its report that US banks are pushing the SEC for changes in guidance around holding digital assets.

A coalition of banking and financial services groups recently sent a letter to SEC Chair Gary Gensler, arguing that the current accounting guidance excludes American banks from serving as asset custodians for Bitcoin ETFs. They are advocating for adjustments that would enable banks to more effectively offer crypto custody services.

CCN recently pointed to the record inflows of almost $2B in a single week into the Bitcoin ETFs.

Implications of Disclosure Actions

Action against VanEck signals continued tightening of rules for crypto market players. And the SEC can likely enforce stricter securities regulations going forward. The case might also set a precedent for Bitcoin ETF players.

As the regulatory landscape continues to evolve, compliance and transparency are reminders for the Bitcoin ETF players especially when analysts see billions flowing into the ETPs.