WisdomTree Pays $4M SEC Penalty For Compliance Failures Related To ESG Funds

The U.S. Securities and Exchange Commission (SEC) on Monday charged investment adviser WisdomTree Asset Management Inc. with making misstatements and compliance failures related to the execution of an investment strategy marketed as incorporating environmental, social and governance (ESG) factors.

The Details:  According to the SEC’s order, from March 2020 until November 2022, WisdomTree invested in companies involved in fossil fuels and tobacco in three ESG-marketed ETFs. This contradicted the funds’ prospectuses which stated the funds would not be invested in companies involved in certain products or activities, such as fossil fuels and tobacco. 

The order also found WisdomTree lacked policies and procedures for the screening process to exclude such companies from the funds.

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“At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisors must do what they say and say what they do,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in a statement. 

“When investment advisors 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,” Wadhwa added. 

WisdomTree liquidated the funds in February 2024, according to an SEC filing from the firm. The three delisted ETFs included the WisdomTree International ESG Fund, the WisdomTree Emerging Markets Fund and the WisdomTree U.S. ESG Fund.

WisdomTree agreed to pay a $4 million civil penalty without admitting or denying the SEC’s findings. 

WIsdomTree’s largest fund is the WisdomTree Emerging Markets High Dividend Fund DEM with $2.94 billion in assets under management.

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