WisdomTree Asset Management Inc. has agreed to pay $4 million to settle allegations from the U.S. Securities and Exchange Commission (SEC) regarding its failure to fulfill commitments related to its exchange-traded funds (ETFs) that were designed to exclude investments in fossil fuels and tobacco products. The SEC’s cease and desist order, issued on Monday, outlines that WisdomTree marketed three funds from March 2020 to November 2022 with a strategy focused on environmental, social, and governance (ESG) principles, claiming to avoid certain “controversial products or activities.”
However, the SEC found that some of the companies included in these funds were engaged in activities such as coal mining, natural gas extraction, and tobacco retail, directly contradicting the firm’s stated investment strategy.
While WisdomTree did not admit or deny the SEC’s findings, a lawyer representing the New York-based firm did not respond immediately to requests for comment.
According to the SEC, WisdomTree relied on data from a third-party vendor that failed to adequately screen out companies involved in these controversial sectors. Furthermore, the firm lacked sufficient policies and procedures to effectively manage the exclusion of such companies from its investment portfolios.
In its regulatory filing on Monday, WisdomTree confirmed that the funds in question were liquidated in February. Throughout their existence as ESG-branded funds, they averaged approximately $119 million in assets under management. The firm indicated that its insurance is expected to cover its legal expenses, excluding the penalty, after a $1 million deductible.
In a statement, WisdomTree emphasized its commitment to regulatory compliance and its dedication to providing innovative investment strategies in the ETF market.
Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, commented on the case, stating, “At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisers must do what they say and say what they do.”
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