A New York-based investment adviser has been charged with failing to adhere to its own investment criteria for environmental, social and governance-market funds.
The Securities and Exchange Commission announced the charges against WisdomTree Asset Management Inc. The SEC said that the firm misleadingly marketed three funds as having an ESG investment strategy.
The SEC determined that from March 2020 until November 2022, WisdomTree represented that three ESG-marketed exchange-traded funds would not invest in companies involved in certain products or activities, including fossil fuels and tobacco. But the funds in fact invested in companies that were involved in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.
WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities, the SEC found. It added that did not have any policies and procedures to ensure the screening process excluded such companies.
“At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisers must do what they say and say what they do,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “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. 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 consented to the entry of the SEC’s order finding that it violated the antifraud provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940, and the compliance rule in the Investment Advisers Act. WisdomTree did not admit or deny the SEC’s findings but agreed to a cease-and-desist order and censure and to pay a $4 million civil penalty.
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