SEC Charges Advisory Firm WisdomTree with Failing to Adhere to Its Own Investment Criteria For ESG-Marketed Funds

The Securities and Exchange Commission today charged New York-based investment adviser WisdomTree Asset Management Inc. with making misstatements and for compliance failures relating to the execution of an investment strategy that was marketed as incorporating environmental, social, and governance (ESG) factors.

According to the SEC’s order, from March 2020 until November 2022, WisdomTree represented in prospectuses for three ESG-marketed exchange-traded funds, and to the board of trustees overseeing the funds, that the funds would not invest in companies involved in certain products or activities, including fossil fuels and tobacco. However, the SEC’s order finds that the ESG-marketed funds invested in companies that were involved in fossil fuels and tobacco, including in coal mining and transportation, natural gas extraction and distribution, and retail sales of tobacco products. According to the SEC’s order, WisdomTree used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities. The SEC’s order further finds that WisdomTree did not have any 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, 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.”

WisdomTree consented to the entry of the SEC’s order finding that it 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. Without admitting or denying the SEC’s findings, WisdomTree agreed to a cease-and-desist order and censure and to pay a $4 million civil penalty.

The SEC’s investigation was conducted by Salvatore Massa and Joshua Tannen, and was supervised by Lee A. Greenwood, Andrew Dean, and Corey Schuster, all from the Enforcement Division’s Asset Management Unit. Russell Feldman and Daniel Loss of the Enforcement Division’s New York Regional Office provided assistance in the matter. The examination that led to the investigation was conducted by Arjuman Sultana, Majid S. Mahmood, Lev Miller, and Margaret Pottanat of the Division of Examinations.