The Securities and Exchange Commission said it has penalized WisdomTree Asset Management $4 million for failing to adhere to its environmental, social and governance (ESG) policies in managing and marketing three former exchange-traded funds.
WWisdomTree, without admitting to or denying the allegations, consented to the agency findings that it violated antifraud provisions of the Investment Advisers Act and the Investment Company Act and agreed to the regulator’s cease-and-desist order, a censure and the monetary penalty, the SEC said.
From March 2020 until November 2022, WisdomTree managed and marketed three exchange-traded funds as ESG funds that did not invest in companies “involved in certain controversial products or activities,” including fossil fuels and tobacco. But the SEC discovered all three ETFs did, in fact, invest in companies that were involved in coal mining, natural gas extraction and distribution and the retail sale of tobacco products, the agency said.
WisdomTree, which reported $109.7 billion in assets under management as of the end of July, didn’t revise the funds’ prospectuses to reflect the investments until November 2022, the agency said.
All three funds—the WisdomTree International ESG Fund, WisdomTree Emerging Markets ESG Fund and WisdomTree U.S. ESG Fund—were launched in March 2020, had cumulative average monthly AUM of $119 million and were liquidated by the firm in February 2024.
The firm used data from third-party vendors that did not screen out all companies involved in fossil fuel and tobacco-related activities, but the firm failed to purchase supplemental data that would have identified additional companies that should have been screened out, the SEC said.
In addition, WisdomTree did not adopt and implement written policies and procedures to prevent violations of securities law in connection with the investment process for the ESG Funds, according to the regulator.
“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,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement. “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.”
A WisdomTree Asset Management spokesperson said the firm is “pleased to resolve the matter, which concerned certain statements about the ESG screening process for three ETFs we advised. … We take our regulatory and compliance responsibilities very seriously, and as the SEC’s order found, we updated the prospectuses of the relevant ETFs in November 2022.”
