Registered investment advisor Van Eck Associates Corporation has agreed to pay the SEC a $1.75 million penalty to settle charges that it failed to disclose it was paying Barstool Sports CEO Dave Portnoy to help launch and promote its VanEck Social Sentiment ETF.

Van Eck launched the ETF in March 2021 to "track an index based on 'positive insights' from social media and other data," the SEC said. "The provider of that index informed Van Eck Associates that it planned to retain [Portnoy] to promote the index in connection with the launch of the ETF."

The fund, which has $75 million, has lost 6% since inception.

The problem with the ETF wasn’t performance, according to the SEC. Instead, the regulator said, the civil case was rooted in Van Eck’s failure to tell investors and the fund’s board of directors that Portnoy was going to be paid to promote the fund. The SEC described Portnoy as “a well-known and controversial social media influencer," adding that Van Eck agreed to pay him and the index firm a sliding scale fee based on ETF inflows.

Portnoy, the owner of the Barstool Sports franchise, has three million followers on X and 4.8 million on Instagram. Van Eck failed to disclose to its board of investors both the influencer’s involvement in the fund and the sliding fee scale it intended to pay Portnoy, the SEC said.

“The proposed licensing fee structure included a sliding scale linked to the size of the fund so, as the fund grew, the index provider would receive a greater percentage of the management fee the fund paid to Van Eck Associates,” according to the regulator.

The index provider was to receive “at least 20% of the net management fee Van Eck accrued, (after netting out four basis points attributed to expenses) and as much as 60% of the management fee if the new ETF accrued in excess of $1.25 billion in assets under management within eighteen months of launching the fund. [Portnoy] was offered an ownership interest in the Index Provider, which he accepted. The ownership agreement was executed on or about February 24, 2021," the SEC said.

“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," Andrew Dean, co-chief of the SEC Enforcement Division’s asset management unit, said in a statement.

Before the discussions concerning the ETF, ‘Van Eck had no experience working with a social media influencer in either promoting an ETF it advised or promoting an index used by a [Van Eck] advised ETF. Nevertheless, at least one executive expressed a belief that the involvement of the Influencer, who had a large following on social media, was essential to the success of the ETF,” the SEC said.

“Van Eck does not have a comment at this time,” company spokesman Chris Sullivan said. The firm settled without admitting to or denying guilt.

Van Eck consented to the entry of the SEC’s order finding that it violated the Investment Company Act and Investment Advisers Act and agreed to a cease-and-desist order and a censure in addition to the monetary penalty, the SEC said.