WisdomTree Asset Management Fine Amount: $4,000,000
Date: October 2024
Violation Period: March 2020 - November 2022
Market: ETFs
Primary Violation: Misleading ESG Claims (Greenwashing)
The Securities and Exchange Commission (SEC) charged WisdomTree Asset Management for making misstatements regarding the investment strategy of three exchange-traded funds (ETFs) marketed as incorporating environmental, social, and governance (ESG) factors. The firm represented that these funds would exclude investments in companies involved in fossil fuels and tobacco but failed to fully implement these exclusions.
The WisdomTree International ESG Fund held securities of:
A freight company with substantial coal-transport operations (March 2020 - December 2021)
A major natural gas distributor with interests in shale gas extraction (March 2020 - December 2023)
A specialty chemical company providing chemicals for offshore/onshore drilling (June - September 2021 and June 2022 - February 2024)
WisdomTree Emerging Markets ESG Fund held securities of:
A company owning natural gas distributors and infrastructure (March 2020 - February 2024)
A natural gas distributor (March 2020 - March 2021)
A firm with a 25% stake in an oil refining and distribution company (December 2020 - September 2021)
WisdomTree U.S. ESG Fund held securities of:
Multiple utility holding companies owning natural gas distribution utilities
A utility company with shale gas extraction operations (June 2022 - March 2023)
A steelmaker with a 49% stake in oil and gas reserves
A freight railroad transporting coal, fracking sand, and crude oil
Vendor A (Third-Party Ratings Firm) offered separate data sets for Arctic Oil and Gas Exploration, Thermal Coal, and Oil Sands, but WisdomTree did not subscribe to data sets covering Shale Energy, Oil, and Gas. There were also tobacco screening limitations. WisdomTree initially overlooked retailers with less than 10% revenue from tobacco. A methodology update in June 2020 led to the divestment of 35 positions.
Vendor B (Additional Data Source) was only used for "Energy Sector" classifications. Thus, WisdomTree missed companies in other sectors involved in fossil fuels (e.g., utilities distributing natural gas). There was no comprehensive fossil fuel screening across all sectors.
March 2020: ESG Funds launched with statements excluding fossil fuel and tobacco investments. WisdomTree became aware of data coverage limitations.
September 2020: Internal reports revealed continued holdings in fossil fuel-related companies. WisdomTree Asset Management did not update its prospectus or board disclosures.
November 2022: WisdomTree's prospectus was updated to narrow the definition of "fossil fuels-related activities," and new risk disclosures were added regarding third-party data limitations. WisdomTree removed absolute exclusion statements.
The SEC order imposed a civil monetary penalty of $4,000,000.
SEC - Press Release - Charges Advisory Firm WisdomTree with Failing to Adhere to Its Own Investment Criteria For ESG-Marketed Funds
SEC - Order - In the Matter of WisdomTree Asset Management, Inc.