(Bloomberg) -- Advisory firm WisdomTree Asset Management Inc. agreed to pay $4 million to settle US Securities and Exchange Commission allegations that it failed to deliver on its promise to create exchange-traded funds that avoided investments in fossil fuels or tobacco.
WisdomTree touted three funds from March 2020 to November 2022 with an environmental, social and governance strategy that excluded certain “controversial products or activities,” according to the regulator’s cease and desist order on Monday. Some of the companies chosen as investments were involved in coal mining and transportation, natural gas extraction and retail sales of tobacco products, the SEC said.
The firm didn’t admit or deny the SEC’s findings. A lawyer for New York-based WisdomTree didn’t immediately respond to a request for comment.
WisdomTree used data from a third-party vendor that failed to screen out all companies, the SEC said. The firm also didn’t have policies or procedures over the process to exclude such companies, according to the agency.
The funds were liquidated in February, WisdomTree said in a regulatory filing on Monday. Collectively, they averaged about $119 million of assets under management throughout their lifetime as ESG-named funds, the firm said. Insurance is expected to cover the company’s legal costs, excluding the penalty, after a $1 million deductible, WisdomTree said.
In a statement, the firm said it takes its regulatory and compliance responsibilities seriously and remains “committed to continuing to bring innovative investment strategies to the ETF market.”
“At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisers 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.
(Updates fifth paragraph with detail on costs, adds statement.)
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