The folks at a publicly traded, $113-billion-AUM (as of yesterday, i.e. Tuesday, October 22) have settled greenwashing charges around a trio of now-defunct ETFs.

Jonathan Laurence "Jono" Steinberg WisdomTree Investments, Inc. CEO

On Monday (October 21), Sanjay Wadhwa, acting director of the division of enforcement in the U.S. Securities and Exchange Commission (SEC), revealed charges that WisdomTree Asset Management Inc. [profile] the Investment Advisers Act of 1940 and the Investment Company Act of 1940 by not living up to the ESG standards promised for three funds: the WisdomTree Emerging Markets ESG Fund (RESE), the WisdomTree International ESG Fund (RESD), and the WisdomTree U.S. ESG Fund (RESP). New York City-based WisdomTree settled the charges by agreeing to pay a $4-million civil penalty and to a cease-and-desist order and censure.

The settlement comes three months after the WisdomTree team revealed that the SEC sent them a Wells notice on the matter and eight months after the WisdomTree team liquidated the three funds in question.

"Excluding the penalty, the Company expects that all legal and other related expenses incurred by WTAM in connection with the matter will be covered by insurance, less a $1.0 million deductible," the WisdomTree team writes in a Monday filing regarding the settlement, noting that the firm agreed to the settlement "without admitting or denying the SEC's allegations." (That's a common caveat in such regulatory settlements.)

"We take our regulatory and compliance responsibilities very seriously. We are proud of our investment track record and our transparency with investors," a WisdomTree spokesperson told Reuters.

In the 11-page order on the settlement, the SEC accuses WisdomTree of failing to screen out some fossil-fuel-related and tobacco-related companies from the three ESG ETFs between March 2020 and November 2022, despite telling the funds' board and saying in the prospectuses that the funds' model would screen out all such companies. But in November 2022, the WisdomTree team updated their disclosures.

Salvatore Massa and Joshua Tannen, from the asset management unit of the SEC's enforcement division, conducted the investigation, following an exam by Majid Mahmood, Lev Miller, Margaret Pottanat, and Arjuman Sultan from the SEC's examinations division. The investigation was supervised by Andrew Dean, Lee Greenwood, and Corey Schuster, also from the enforcement division's asset management unit. And Russell Feldman and Daniel Loss, from the New York regional office of the enforcement division, assisted in the investigation.

"At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisers must do what they say and say what they do," Wadhwa states. "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." 

Edited by: Neil Anderson, Managing Editor


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