The U.S. Securities and Exchange Commission (SEC) has fined WisdomTree, a New York-based issuer of ETFs, $4 million for failing to adhere to its own investment criteria for funds marketed as following the Environmental, Social, and Governance (ESG) framework.
According to the securities regulator, the firm misrepresented the nature of these funds and misled investors and trustees between March 2020 and November 2022.
The SEC’s investigation found that WisdomTree claimed three of its ESG-focused ETFs excluded investments in companies involved in fossil fuels and tobacco. However, contrary to these claims, the funds held positions in companies engaged in coal mining, natural gas extraction, and tobacco sales.
The regulator also stated that the firm relied on third-party data vendors, which failed to screen out such companies adequately, and that WisdomTree did not have proper compliance measures in place to ensure adherence to its stated investment guidelines.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the importance of transparency in ESG investments.
“When investment advisers promise to follow specific criteria, they must do so, or clearly disclose any limitations. WisdomTree’s funds, however, made investments that investors would not have expected based on the company’s disclosures,”
he said.
Without admitting or denying the SEC’s findings, WisdomTree agreed to a cease-and-desist order, censure, and the $4 million civil penalty, according to Reuters.
Meanwhile, despite this regulatory setback, WisdomTree remains a significant player in the cryptocurrency market. According to data from Farside Investors, the company’s WisdomTree Bitcoin Fund (BTCW) outpaced Bitcoin’s performance in 2024, gaining 75% compared to the cryptocurrency’s 60% rise. WisdomTree continues to expand its crypto offerings, including the launch of crypto exchange-traded products (ETPs) in the UK earlier this year in partnership with 21Shares.
In a related development, Nasdaq and BlackRock are reportedly moving forward with plans to list and trade options for BlackRock’s spot Ethereum exchange-traded fund (ETF). This reflects the growing interest in cryptocurrency-focused ETFs as major financial players continue to expand their offerings in digital assets alongside more traditional ESG and equity-based funds.
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