The U.S. Securities and Exchange Commission (SEC) announced that it has charged ETF provider and asset manager WisdomTree with making misstatements and compliance failures after finding that funds marketed by the firm as incorporating ESG factors failed to comply with their own criteria, by investing in companies involved in fossil fuel and tobacco activities.
According to the SEC and a filing by WisdomTree, three ETFs managed by the firm that pursued ESG-focused strategies represented in their prospectuses from March 2020 until November 2021 that the funds would screen out investments in companies involved in products and activities including fossil fuels and tobacco. In its order, however, the SEC said that it found investments by the funds in these areas, including in companies involved in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.
The SEC order also found that WisdomTree did not have policies and procedures over the screening process to exclude fossil fuel and tobacco-involved companies, and that the firm used data from third-party vendors that did not screen out all companies involved in these activities.
WisdomTree agreed to pay a $4 million civil penalty and to a cease-and-desist order to resolve the issue, and consented to the entry of the SEC’s order finding without admitting or denying the allegations.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, said:
“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.”
