The Securities and Exchange Commission charged New York-based investment advisor WisdomTree Asset Management Inc. with making misstatements and for compliance failures relating to how it managed funds that were marketed as incorporating environmental, social, and governance factors.
According to the SEC’s order, from March 2020 until November 2022, WisdomTree invested in companies involved in fossil fuels and tobacco in three ESG-marketed ETFs, contradicting guidance laid out in the funds’ prospectuses.
Without admitting or denying the SEC’s findings, WisdomTree agreed to a cease-and-desist order and censure and to pay a $4 million civil penalty.
WisdomTree launched the funds in March 2020 and liquidated them in February of this year, according to an SEC filing from the firm. The ETFs had “monthly average cumulative assets under management of approximately $119 million throughout their lifetime as ESG-named funds,” according to the filing. The three delisted ETFs included the WisdomTree International ESG Fund (RESD), the WisdomTree Emerging Markets Fund (RESE) and the WisdomTree U.S. ESG Fund (RESP).
In addition to the fine, WisdomTree's filing said it “expects that all legal and other related expenses incurred by WTAM in connection with the matter will be covered by insurance, less a $1.0 million deductible.”
The investments in the ESG funds included coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.
According to the SEC’s order, WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities. The SEC’s order further finds that WisdomTree did not have any policies and procedures regarding the screening process to exclude such companies.
“At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisors must do what they say and say what they do,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement. “When investment advisors 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.”
WisdomTree has approximately $113 billion in assets under management globally.
