The US Securities and Exchange Commission (SEC) has charged New York-based investment adviser WisdomTree Asset Management with misstatements and compliance failures relating to the execution of its ESG investment strategy. According to the SEC’s order, between 2020 and 2022, WisdomTree represented in prospectuses and to its board of trustees that three ESG-marketed exchange-traded funds would not invest in companies involved in certain products or activities – including fossil fuels and tobacco. The SEC found that the funds had, in fact, invested in activities including 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, and did not have policies and procedures over the screening process to exclude 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, Wadhwa added, the funds at issue in the enforcement action made precisely the types of investments that investors would not have expected them to, based on WisdomTree’s disclosures. The firm consented to the entry of the SEC order, which found that it had violated antifraud provisions and compliance rules under the Investment Advisers Act of 1940 and the Investment Company Act of 1940. Without admitting or denying the SEC’s findings, WisdomTree agreed to a cease-and-desist order and censure, and will pay in US$4million in civil penalty. Although it shut down its ESG taskforce last month, following a 2021 launch, the SEC has been actively undertaking enforcement actions against greenwashing over the past two years.
