WisdomTree Asset Management, an investment advisory firm based in New York, has agreed to pay a $4 million penalty to settle charges brought by the U.S. Securities and Exchange Commission (SEC). The SEC accused WisdomTree of making false statements regarding its environmental, social, and governance (ESG) funds and failing to adhere to its own investment standards. This settlement is part of the SEC's ongoing crackdown on "greenwashing," a practice where investment managers market funds as ESG-focused but still invest in fossil fuels or other non-ESG sectors.
Between March 2020 and November 2022, WisdomTree claimed in prospectuses of three ESG exchange-traded funds and to their overseeing boards that these funds would not invest in companies involved with certain products or activities, such as fossil fuels and tobacco. However, the SEC found these funds did invest in companies engaged in coal mining and transportation, natural gas extraction and distribution, and tobacco product sales.
According to the SEC, the data used by WisdomTree came from third-party providers who did not screen out all companies involved in fossil fuels and tobacco. Additionally, the SEC discovered that WisdomTree lacked any policy or procedure to exclude these companies during its screening process.
Sanjay Wadhwa, Acting Director of the SEC's Division of Enforcement, emphasized that federal securities laws require investment advisors to be truthful and consistent. He stated that when advisors commit to following specific investment standards, they must adhere to them and disclose any limitations or exceptions. In this case, the investments made by these funds were not what investors expected based on WisdomTree's disclosures.
Without admitting or denying the SEC's findings, WisdomTree consented to the SEC's order, admitting a violation of the anti-fraud provisions of the Investment Advisers Act and the Investment Company Act of 1940, as well as the compliance rules of the Advisers Act. The firm agreed to a cease-and-desist order, censure, and a $4 million civil penalty.
A spokesperson for WisdomTree noted that the involved funds were small and have since been liquidated. The company emphasized its commitment to regulatory and compliance responsibilities and expressed pride in its investment record and transparency with investors.
