A New York based investment advisor that marketed three ETFs as not investing in certain industries has been charged by the Securities and Exchange Commission for failing to stick to its criteria.
The SEC said that from March 2020 until November 2022, WisdomTree marketed the funds as incorporating ESG factors and stating in the prospectuses that they would not invest in companies involved in certain products or activities, including fossil fuels and tobacco.
However, the SEC Order finds that the funds invested in companies including those involved in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products.
The investigation found that WisdomTree relied on data from a third-party vendor but did not have procedures and policies in place to screen the data for compliance with its stated investment criteria.
“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.”
The SEC Order stated that WisdomTree had 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.
The investment firm consented to this entry in the order but without admitting or denying the charges made against it the firm agreed to a cease-and-desist order and censure and to pay a $4 million civil penalty.
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