WisdomTree Asset Management will pay a $4 million civil penalty to settle Securities and Exchange Commission charges over making misstatements related to three funds marketed as incorporating environmental, social and governance factors.
WisdomTree, a registered investment adviser that did not admit to or deny the SEC’s findings, consented to the SEC’s order and accepted a cease-and-desist order and censure, the SEC announced Oct. 21.
In prospectuses for three ESG-marketed exchange-traded funds, and to the board of trustees overseeing the funds, WisdomTree from March 2020 until November 2022 represented that the funds would not invest in companies involved in certain products or activities, including fossil fuels and tobacco. But an SEC investigation found that the three funds were involved in fossil fuels and tobacco, including in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products, according to the SEC order.
WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities, and the firm did not have any policies and procedures over the screening process to exclude such companies, the SEC found.
“When investment advisers represent that they will follow particular investment criteria, whether that is investing in, or refraining from investing in, companies involved in certain activities, they have to adhere to that criteria and appropriately disclose any limitations or exceptions to such criteria,” said Sanjay Wadhwa, acting director of the SEC’s enforcement division, in a statement. “By contrast, the funds at issue in today’s enforcement action made precisely the types of investments that investors would not have expected them to based on WisdomTree’s disclosures.”
WisdomTree said in a statement it was pleased to resolve the matter and noted the three funds, which were liquidated in February, collectively had a monthly average for assets under management of about $119 million throughout their lifetime as ESG-named funds. "We take our regulatory and compliance responsibilities very seriously, and as the SEC’s order found, we updated the prospectuses of the relevant ETFs in November 2022," WisdomTree added. "We are proud of our investment track record and our transparency with investors, and we remain committed to continuing to bring innovative investment strategies to the ETF market."
