WisdomTree: SEC penalty for ESG investment strategy misstatements and greenwashing 2025

The Securities and Exchange Commission levied a $4 million civil penalty against New York based WisdomTree Asset Management Inc. on October 21, 2024. The federal regulator charged the investment adviser with making material misstatements and failing to execute its own stated investment criteria for three funds marketed under environmental, social, and governance labels. Between March 2020 and November 2022, WisdomTree promised investors that its ESG funds strictly exclude companies involved in fossil fuels and tobacco. The reality contradicted the marketing materials. The firm directed investor capital into coal mining, natural gas extraction, and retail tobacco sales.

20 Question Fan Out: The WisdomTree Greenwashing Settlement

1. Who did the SEC fine? The agency penalized WisdomTree Asset Management Inc..

2. What was the exact penalty amount? The firm agreed to pay a $4 million civil penalty.

3. When did the SEC announce the enforcement action? The regulator published the cease and desist order on October 21, 2024.

4. What was the primary violation? The firm engaged in greenwashing by falsely advertising three exchange traded funds as free of fossil fuels and tobacco.

5. Which specific funds were involved? The action targeted the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund, and the WisdomTree U. S. ESG Fund.

6. What were the ticker symbols for these funds? The market traded these funds under the tickers RESD, RESE, and RESP.

7. When did the violation period occur? The documented misstatements took place between March 2020 and November 2022.

8. What restricted sectors received investor money? The funds held shares in coal mining, natural gas extraction, and retail tobacco companies.

9. How much money did these funds manage? The three funds held a monthly average cumulative asset under management of $119 million.

10. Did WisdomTree admit to the SEC findings? The firm consented to the order without admitting or denying the regulatory findings.

11. Are these funds still active? WisdomTree liquidated all three funds in February 2024.

12. Who identified the screening failure? The SEC Division of Enforcement investigated the firm and discovered the compliance failures during a routine examination.

13. Why did the investment screening fail? WisdomTree relied on third party data vendors that failed to exclude all companies involved in the restricted activities due to incomplete data sets.

14. Did the firm have internal policies to catch this error? The SEC found the firm operated in the absence of internal policies and procedures to properly screen out the restricted companies.

15. When did the firm realize the screening process was flawed? The SEC stated the firm knew about the data errors since at least September 2020 when preparing internal reports.

16. Did the firm inform investors about the error immediately? The firm continued to misrepresent the investment strategies to the board of trustees and the public.

17. Who spoke on behalf of the SEC regarding this case? Sanjay Wadhwa served as the Acting Director of the SEC Division of Enforcement during the settlement.

18. What did the SEC Division of Enforcement state about the case? Wadhwa stated that investment advisers must do what they say and say what they do.

19. Does insurance cover the financial penalty? WisdomTree expects insurance to cover legal expenses minus a $1 million deductible.

20. What specific fossil fuel activities were funded? The funds financed coal transportation, shale gas extraction, and natural gas distribution.

The Mechanics of the Deception

WisdomTree launched the three ESG funds in March 2020. The prospectuses for RESD, RESE, and RESP explicitly stated that the investment model excludes the securities of companies with involvement in fossil fuels and tobacco regardless of revenue measures. Investors allocated capital based on these strict exclusionary criteria. The three funds accumulated a monthly average of $119 million in assets under management throughout their lifespan.

The SEC investigation revealed a severe breakdown in compliance. WisdomTree contracted with third party data vendors to screen prospective investments. These external data sets failed to filter out all offending companies. The WisdomTree International ESG Fund held securities of a freight company with substantial coal transport operations from March 2020 to December 2021. The same fund held shares in a major natural gas distributor with interests in shale gas extraction until December 2023. The WisdomTree Emerging Markets ESG Fund invested in a company owning natural gas distributors and infrastructure from March 2020 to February 2024. The WisdomTree U. S. ESG Fund held multiple utility holding companies owning natural gas distribution utilities. It also held a utility company with shale gas extraction operations from June 2022 to March 2023, a steelmaker with a 49 percent stake in oil and gas reserves, and a freight railroad transporting coal, fracking sand, and crude oil.

The regulatory order noted that WisdomTree became aware of the flawed screening process by September 2020. The firm discovered the errors while preparing ESG characteristics reports for the funds. The firm failed to purchase supplemental data that identifies the restricted companies. The asset manager continued to misrepresent the funds to the board of trustees and the investing public until November 2022. The firm collected management fees on the $119 million in assets while operating in direct violation of its own prospectus guidelines. Investors paid for a clean portfolio received exposure to the exact industries they sought to avoid.

At a fundamental level, the federal securities laws enforce a straightforward proposition. Investment advisers must do what they say and say what they do. When investment advisers represent that they follow particular investment criteria, they have to adhere to that criteria and appropriately disclose any limitations or exceptions.

Sanjay Wadhwa, Acting Director of the SEC Division of Enforcement, released this statement regarding the settlement. He emphasized that the funds made precisely the types of investments that investors wanted to avoid based on the disclosures.

Financial Impact and Liquidation

WisdomTree agreed to a cease and desist order, a formal censure, and the $4 million civil penalty. The firm liquidated the three funds in February 2024, months before the SEC finalized the public enforcement action. The company disclosed in regulatory filings that it expects insurance to cover the legal and related expenses incurred during the investigation, minus a $1 million deductible.

The SEC disbanded its Climate and ESG Task Force earlier in 2024. Industry observers questioned if the agency plans to reduce its focus on greenwashing. The $4 million penalty against WisdomTree confirmed that the Division of Enforcement continues to pursue material misstatements in ESG marketing. The agency previously fined Keurig Dr Pepper Inc. $1. 5 million in September 2024 for inaccurate recyclability claims. The WisdomTree settlement proves the federal government penalizes investment advisers who fail to audit their third party data providers.

The table details the specific funds involved in the SEC enforcement action and the restricted sectors they improperly funded.

Visualizing the WisdomTree ESG Fund Metrics

The following chart illustrates the financial size of the WisdomTree ESG fund operations compared to the regulatory penalties and insurance deductibles.

WisdomTree ESG Funds: Financial Metrics (Millions USD) 0 25 50 75 100 125 $119M Average AUM $4M SEC Penalty $1M Insurance Deductible

The enforcement action against WisdomTree demonstrates the strict regulatory scrutiny applied to ESG marketing claims. The SEC Division of Enforcement requires asset managers to verify third party data and implement internal compliance checks. Relying blindly on external vendors does not shield a firm from federal liability when investor capital flows into restricted sectors. The federal government expects financial institutions to build internal verification systems. Firms must cross reference vendor data against public filings to ensure compliance with stated investment mandates.

20 Investigative Questions Answered

What was the exact AUM? The three funds held a monthly average cumulative assets under management of approximately $119 million. What were the ticker symbols? The funds traded under the symbols RESD, RESE, and RESP. When did the violations occur? The Securities and Exchange Commission identified the violation period between March 2020 and November 2022. When did the firm liquidate the funds? WisdomTree liquidated the three funds in February 2024. What did the prospectuses state? The filings stated the funds excluded companies involved in fossil fuels and tobacco. Did the funds hold restricted assets? Yes. What specific sectors appeared in the portfolios? The portfolios contained coal mining, natural gas extraction, and retail tobacco. Why did the screening fail? The firm used third party vendor data that did not filter all restricted activities. Did the firm have internal checks? The regulator found an absence of internal policies to verify the screening process. Which specific fund held a coal transport company? The WisdomTree International ESG Fund held a freight company with coal transport operations. Which fund held a steelmaker with oil reserves? The WisdomTree U.S. ESG Fund held a steelmaker with a 49 percent stake in oil and gas reserves. Which fund held an oil refining stake? The WisdomTree Emerging Markets ESG Fund held a firm with a 25 percent stake in oil refining. Did the firm admit guilt? WisdomTree consented to the order without admitting or denying the findings. Who conducted the investigation? Salvatore Massa and Joshua Tannen conducted the inquiry. Who supervised the probe? Lee A. Greenwood, Andrew Dean, and Corey Schuster supervised the work. Which regulatory unit handled the case? The Asset Management Unit of the Enforcement Division managed the matter. What laws did the firm violate? The firm violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. How much is the insurance deductible? The firm expects insurance to cover legal expenses minus a $1 million deductible. What was the exact penalty? The firm agreed to a $4 million civil penalty. Did the firm change the fund names? The firm rebranded the funds with ESG names in 2020.

The $119 Million AUM and the Three Delisted ETFs

WisdomTree Asset Management launched three exchange traded funds in March 2020. The firm marketed these products as environmentally and socially responsible investments. The three funds included the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund, and the WisdomTree U.S. ESG Fund. The firm listed these funds under the ticker symbols RESD, RESE, and RESP. Regulatory filings show these three products maintained a monthly average cumulative assets under management of approximately $119 million throughout their lifetime as ESG named funds.

The firm presented specific investment criteria to the board of trustees overseeing the funds. The prospectuses for RESD, RESE, and RESP stated the investment model excluded the securities of companies involved in fossil fuels and tobacco. The filings specified this exclusion applied regardless of revenue measures. Investors allocated capital to these funds based on the explicit commitment that their money did not finance coal mining, natural gas extraction, or tobacco sales.

The Securities and Exchange Commission discovered the funds did not follow these published guidelines. The regulator identified a continuous violation period stretching from March 2020 until November 2022. During this 32 month window, the $119 million AUM flowed into the exact industries the prospectuses committed to avoid. The firm liquidated all three funds in February 2024.

Tracking the Contraband Holdings

The federal probe exposed specific portfolio holdings that directly contradicted the marketing materials. The Asset Management Unit of the Enforcement Division tracked the capital deployment across all three ETFs. Investigators found multiple instances where the funds purchased shares in heavy carbon emitters and tobacco retailers.

The WisdomTree International ESG Fund held securities in a freight company with substantial coal transport operations between March 2020 and December 2021. The same fund held shares in a major natural gas distributor with interests in shale gas extraction from March 2020 to December 2023. The portfolio also included a specialty chemical company providing chemicals for offshore and onshore drilling between June and September 2021, and again from June 2022 to February 2024.

The WisdomTree Emerging Markets ESG Fund exhibited similar allocation patterns. The fund held a company owning natural gas distributors and infrastructure from March 2020 to February 2024. The portfolio contained a firm with a 25 percent stake in an oil refining and distribution company between December 2020 and September 2021. The fund also held a natural gas distributor from March 2020 to March 2021.

The WisdomTree U.S. ESG Fund invested domestic capital into restricted sectors. The fund held multiple utility holding companies that owned natural gas distribution utilities. The portfolio included a steelmaker with a 49 percent stake in oil and gas reserves. The fund also purchased shares in a freight railroad transporting coal, fracking sand, and crude oil. The fund held a utility company with shale gas extraction operations from June 2022 to March 2023.

Third Party Data Failures and the Absence of Internal Controls

The origin of the compliance failure started in the data sourcing phase. WisdomTree contracted with third party data vendors to screen prospective investments. The firm relied entirely on these external data sets to filter out companies involved in fossil fuels and tobacco. The vendor data proved incomplete. The external screens failed to identify numerous companies engaged in restricted activities. The vendors used methodologies that did not align with the strict exclusion criteria published in the WisdomTree prospectuses.

The Securities and Exchange Commission order detailed a serious operational defect within the firm. WisdomTree operated with an absence of internal policies and procedures to verify the screening process. The firm did not build a secondary verification system to catch the errors generated by the third party vendors. The compliance department did not audit the external data against the specific commitments made in the fund prospectuses. The firm presented the ESG strategy to the board of trustees without implementing the necessary safeguards to execute the strategy accurately.

At a fundamental level, the federal securities laws enforce a straightforward proposition. Investment advisers must do what they say and say what they do. When investment advisers represent that they 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.

Sanjay Wadhwa, Acting Director of the SEC Division of Enforcement, delivered this statement regarding the enforcement action. The regulator determined the funds made precisely the types of investments that investors expected them to avoid based on the disclosures. The firm violated the antifraud provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The regulator also noted a violation of the compliance rule in the Investment Advisers Act.

Liquidation and the Insurance Deductible

The regulatory scrutiny forced a structural change at the firm. WisdomTree obtained board approval to liquidate the three ESG marketed ETFs. The firm officially closed RESD, RESE, and RESP on February 5, 2024. The $119 million AUM dispersed back to investors or reallocated to other products. The liquidation erased the funds from the market before the SEC published the final enforcement order in October 2024.

The financial impact on the firm extends beyond the $4 million civil penalty. WisdomTree filed disclosures regarding the legal expenses associated with the federal investigation. The firm expects insurance policies to cover the legal and related expenses incurred during the matter. The insurance coverage requires the firm to pay a $1 million deductible. The firm consented to the cease and desist order and the censure without admitting or denying the findings. The settlement terms mandate the firm to halt any further violations of the Investment Advisers Act.

The investigation required extensive resources from the federal regulator. Salvatore Massa and Joshua Tannen conducted the primary inquiry. Lee A. Greenwood, Andrew Dean, and Corey Schuster supervised the investigation. All personnel operated out of the Enforcement Division Asset Management Unit. The coordinated effort shut down a $119 million greenwashing operation and established a clear precedent for asset managers relying on unverified third party ESG data.

20 Investigative Questions Answered

1. When did the violation period begin? The violations started in March 2020.

2. When did the violation period end? The period concluded in November 2022.

3. What did the prospectus guarantee? The documents guaranteed zero exposure to fossil fuels and tobacco.

4. Did the funds exclude fossil fuels? No, the funds held multiple fossil fuel assets.

5. Did the funds exclude tobacco? No, the funds held retail tobacco assets.

6. What specific fossil fuel activities were included? The funds held coal mining and transportation assets.

7. Were natural gas companies included? Yes, the funds invested in natural gas extraction and distribution.

8. What specific tobacco activities were included? The funds invested in retail sales of tobacco products.

9. Did the prospectus mention revenue measures? Yes, the documents contained specific language about revenue.

10. What was the exact phrasing regarding revenue? The prospectus stated exclusions applied regardless of revenue measures.

11. Did the firm use external data? Yes, the firm relied on a third party data vendor.

12. Did the external data cover all fossil fuels? No, the purchased data only identified a subset of companies.

13. Which data sets did the firm skip? The firm did not subscribe to shale energy and general gas data.

14. Did the firm buy supplemental data? No, the firm failed to purchase additional screening data.

15. When did the firm realize the data was flawed? The firm knew about the limitations by September 2020.

16. Did the firm notify the board immediately? No, the firm kept the board in the dark about the flaws.

17. Did the firm have written policies for screening? No, the regulator found an absence of written procedures.

18. When did the firm update the prospectus? The firm updated the disclosures in November 2022.

19. When were the funds liquidated? The board approved liquidation in February 2024.

20. Did the firm admit guilt? No, the firm settled without admitting or denying the findings.

The March 2020 to November 2022 Timeline

The Securities and Exchange Commission order details a clear timeline of prospectus contradictions spanning from March 2020 to November 2022. WisdomTree Asset Management Inc launched three exchange traded funds marketed under environmental, social, and governance criteria. The firm presented specific exclusionary rules to the board of trustees and published these rules in the official fund prospectuses. The documents stated the funds would not invest in companies involved in certain controversial products or activities. The prohibited list explicitly included fossil fuels and tobacco. The prospectuses guaranteed these exclusions applied regardless of revenue measures.

The reality of the fund holdings contradicted these published claims. The funds regularly held securities of companies involved in fossil fuel extraction, coal transportation, natural gas distribution, and retail tobacco sales. The WisdomTree International ESG Fund held securities of a freight company with substantial coal transport operations from March 2020 to December 2021. The same fund held a major natural gas distributor with interests in shale gas extraction from March 2020 to December 2023. The WisdomTree Emerging Markets ESG Fund held a company owning natural gas distributors and infrastructure from March 2020 to February 2024. The WisdomTree U. S. ESG Fund held multiple utility holding companies owning natural gas distribution utilities. The fund also held a steelmaker with a forty nine percent stake in oil and gas reserves.

Data Vendor Omissions and Screening Failures

The firm relied on a third party data vendor for screening. The vendor offered separate data sets for different activities. WisdomTree subscribed to data covering arctic oil, thermal coal, and oil sands. The firm chose not to purchase data sets covering shale energy, general oil, and gas. The vendor data also failed to capture retailers deriving less than ten percent of their revenues from tobacco sales. The firm did not purchase supplemental data to cover these blind spots.

The federal regulator found the firm operated without written policies and procedures to oversee the screening process. The firm did not have a system to ensure the selected issuers complied with the investment mandates. The absence of internal controls allowed the funds to purchase and hold prohibited assets for years. The firm failed to implement a verification method to cross check the vendor data against the actual prospectus claims.

Board Presentations and Internal Knowledge

By September 2020, the firm became aware that the screening process was flawed. The firm discovered the omissions while preparing characteristics reports for the funds. Even with this knowledge, the firm failed to inform the board of trustees. The firm also failed to rectify the prospectuses to address the misstatements. The misleading documents remained active and available to investors until November 2022.

The firm updated the prospectus disclosures in November 2022 to address the data limitations. The updated documents acknowledged the data model used to exclude the securities of issuers involved in fossil fuels and tobacco contained exceptions. The firm eventually liquidated the three funds in February 2024 after obtaining board approval. The Securities and Exchange Commission sued the firm for non criminal fraud. The regulator stated that investment advisers must do what they say and say what they do.

The Disconnect Between Marketing and Execution

The core of the regulatory action centered on the massive gap between the public marketing materials and the actual execution of the investment strategy. The firm aggressively marketed the three funds as environmentally and socially responsible options for retail investors. The marketing materials heavily emphasized the strict exclusionary screens. The firm assured investors that the funds would automatically reject any company involved in the specified controversial activities. The firm presented these screens as absolute rules rather than flexible guidelines.

The execution of this strategy failed at the most basic level of data procurement. The firm purchased a basic data package from the vendor declined to pay for the full data sets required to actually fulfill the prospectus guarantees. The firm saved money on data subscriptions while continuing to collect management fees on the one hundred nineteen million dollars in assets under management. The firm knew the basic data package missed massive segments of the fossil fuel industry. The firm knew the data missed companies involved in shale gas extraction and general oil production.

The internal compliance failures worsened the data procurement failures. The firm operated without a dedicated compliance officer assigned to verify the environmental and social governance claims. The firm did not conduct independent research to supplement the vendor data. The firm simply accepted the incomplete data and allowed the automated portfolio models to purchase the prohibited securities. The portfolio managers did not manually review the holdings to ensure compliance with the prospectus. The prohibited securities remained in the funds for years, generating returns based on the exact activities the funds claimed to oppose.

Regulatory Findings and Legal Ramifications

The Securities and Exchange Commission investigation revealed severe deficiencies in the compliance framework of the asset management company. The regulator determined that the firm violated the antifraud provisions of the Investment Advisers Act of 1940. The firm also violated the Investment Company Act of 1940. Section 34(b) of the 1940 Act makes it unlawful for any person to make any untrue statement of material fact in any registration statement filed with the regulator. The firm filed multiple misleading documents over the two year period.

The enforcement action emphasized that investment advisers must adhere to their stated investment criteria. Sanjay Wadhwa, Acting Director of the Division of Enforcement, stated that advisers must appropriately disclose any limitations or exceptions to their criteria. The specific funds in the enforcement action made precisely the types of investments that investors would not have expected based on the disclosures. The firm consented to a cease and desist order and a censure. The firm agreed to pay a four million dollar civil monetary penalty. The firm settled the charges without admitting or denying the findings set forth in the order.

The case represents a broader regulatory crackdown on greenwashing in the financial sector. The regulator has increased scrutiny of claims made by investment advisers regarding environmental and social governance integration. The failure to implement written policies and procedures regarding the screening process proved central to the enforcement action. The firm operated for years without a formal method to verify the accuracy of the third party data. The firm ignored the known data limitations and continued to market the funds as fossil fuel and tobacco free. The board of trustees remained uninformed about the data gaps until the firm updated the prospectus in November 2022.

Violation Timeline and Prohibited Asset Exposure Chart

The Fossil Fuel Contradiction. Coal Mining and Natural Gas Extraction in Green Funds

20 Investigative Questions Answered

1. What did the SEC find in the funds? The agency found investments in coal mining and natural gas extraction.

2. Did the funds hold coal transportation companies? Yes, the portfolios included a freight railroad hauling coal.

3. What other materials did the freight company transport? The railroad also transported fracking sand and crude oil.

4. Were natural gas distributors included? Yes, the funds held shares in specific natural gas distribution utilities.

5. Did the funds invest in shale gas? Yes, the portfolios contained a utility company with shale gas extraction operations.

6. When did the freight company remain in the international fund? The international fund held the freight company from March 2020 to December 2021.

7. How long did the natural gas distributor stay in the international fund? The distributor remained in the portfolio from March 2020 to December 2023.

8. Did the funds hold chemical companies? Yes, the funds invested in a specialty chemical provider for offshore drilling.

9. When did the chemical company appear in the holdings? The chemical company appeared between June 2021 and February 2024.

10. Did the emerging markets fund hold natural gas infrastructure? Yes, the emerging markets fund held a company owning natural gas infrastructure.

11. How long did the emerging markets fund hold the infrastructure company? The fund held the company from March 2020 to February 2024.

12. Did the emerging markets fund hold a standalone natural gas distributor? Yes, the fund held a distributor from March 2020 to March 2021.

13. What did the domestic fund hold? The domestic fund held specific utility holding companies with natural gas operations.

14. Did the funds invest in steelmakers? Yes, the portfolios included a steelmaker with a 49 percent stake in oil and gas reserves.

15. What did the prospectuses state? The documents stated the funds excluded fossil fuel companies regardless of revenue measures.

16. Did the third party data screen all fossil fuel companies? No, the vendor data only identified a fraction of fossil fuel companies.

17. Did the firm buy supplemental data? No, the firm failed to purchase supplemental data to identify additional fossil fuel companies.

18. When did the firm learn about the data limitations? The firm learned about the data gaps by September 2020.

19. Did the firm update the board immediately? No, the firm failed to inform the board about the continued fossil fuel holdings.

20. When did the firm update the prospectus? The firm updated the prospectus in November 2022 to narrow the fossil fuel definition.

The Securities and Exchange Commission investigation revealed specific fossil fuel investments inside the WisdomTree portfolios. The regulatory order detailed how the firm purchased shares in coal mining operations and natural gas extraction companies. The funds carried the environmental label while directing investor capital into heavy carbon emitters. The agency found these investments directly contradicted the prospectus guidelines. The federal regulator documented the exact holding periods for the fossil fuel assets.

The International ESG Fund held a freight company with substantial coal transport operations from March 2020 to December 2021. The same fund invested in a major natural gas distributor involved in shale gas extraction. The fund retained this natural gas distributor from March 2020 until December 2023. The portfolio also contained a specialty chemical company. This chemical provider supplied materials for offshore and onshore oil drilling. The fund held the chemical company between June 2021 and September 2021, and again from June 2022 to February 2024.

The Emerging Markets ESG Fund exhibited similar investment patterns. The portfolio included a company owning natural gas distributors and related infrastructure. The fund maintained this position from March 2020 to February 2024. The fund also held a separate standalone natural gas distributor from March 2020 to March 2021. The U. S. ESG Fund invested in specific utility holding companies that owned natural gas distribution utilities.

Timeline of Fossil Fuel Holdings in Green Funds

The regulatory filings identified additional fossil fuel exposure across the portfolios. The funds invested in a utility company conducting shale gas extraction operations between June 2022 and March 2023. The portfolios held shares in a steelmaker possessing a 49 percent stake in oil and gas reserves. The funds also allocated capital to a freight railroad. The railroad transported coal, fracking sand, and crude oil.

The firm relied on a third party ratings and research vendor to screen companies. The vendor data only identified a fraction of the companies involved in fossil fuel extraction and distribution. The firm failed to purchase supplemental data to identify the remaining fossil fuel companies. The agency stated the firm knew about the screening flaws by September 2020. The firm discovered the continued fossil fuel holdings while preparing internal characteristics reports for the funds.

The Securities and Exchange Commission emphasized the absence of a functional compliance program. The firm failed to implement written policies and procedures reasonably designed to prevent violations of the Advisers Act. The regulatory order specified that the firm needed internal controls to monitor the investment process for the green funds. The firm launched the funds in March 2020 with absolute exclusion statements. The firm became aware of the data coverage limitations shortly after the launch. Internal reports generated in September 2020 revealed the continued holdings in fossil fuel related companies. The firm reviewed these reports took no immediate corrective action. The portfolio managers continued to rely on the incomplete third party data sets. The firm allowed the funds to hold the coal and natural gas assets for years after discovering the screening failures.

The primary data vendor offered complete lists of fossil fuel companies. The vendor provided specific lists identifying shale energy companies and oil and gas companies. The firm declined to subscribe to these specific lists. The firm chose to purchase a basic data set that allowed exceptions based on revenue percentages. The firm purchased this basic data set while simultaneously telling investors the funds excluded fossil fuel companies regardless of revenue measures. The agency highlighted this direct contradiction in the settlement order. The firm knowingly bought a screening tool that permitted the exact investments the prospectus prohibited.

The firm did not update the prospectus or inform the board of trustees about the continued fossil fuel exposure upon discovering the data gaps. The firm waited until November 2022 to update the prospectus. The updated documents narrowed the definition of fossil fuel related activities. The firm added new risk disclosures regarding the limitations of third party data. The firm removed the absolute exclusion statements from the marketing materials.

Sanjay Wadhwa, Acting Director of the SEC Division of Enforcement, addressed the findings in the official press release. Wadhwa stated that investment advisers must do what they say and say what they do. The director noted that advisers must adhere to their stated investment criteria and appropriately disclose any limitations. Wadhwa confirmed the funds made precisely the types of investments that investors did not expect based on the disclosures.

Investors allocated capital to the funds based on the environmental marketing claims. The investors sought to avoid financing heavy carbon emitters. The firm redirected this capital into the exact industries the investors attempted to avoid. The funds financed the extraction of natural gas and the transportation of coal. The funds supported companies building natural gas pipelines and operating oil refineries. The firm compromised the investment objectives of the shareholders to maintain the portfolios. The agency prioritized this case to enforce truth in advertising within the financial sector. The federal regulator mandated that asset managers deliver the exact strategies advertised in their marketing materials.

20 Investigative Questions Answered

The Vendor Data Problem and the Ten Percent Revenue Threshold

The Securities and Exchange Commission order from October 21, 2024, exposed a serious flaw in the environmental, social, and governance screening process at WisdomTree Asset Management Inc.. The federal regulator found that three exchange traded funds held securities in companies engaged in the retail sale of tobacco products. The firm explicitly guaranteed investors and the board of trustees that the funds exclude tobacco companies regardless of revenue measures. The reality of the portfolio composition directly contradicted the marketing materials and the prospectus filings. The inclusion of tobacco retailers represented a direct violation of the stated investment method.

The compliance failure originated from the data procurement strategy. The firm purchased screening data from a third party vendor to filter out banned sectors. The vendor data contained a specific blind spot regarding tobacco sales. The purchased dataset did not capture retailers that derived less than 10 percent of their revenues from the retail sale of tobacco products. The prospectus guaranteed a total exclusion of tobacco companies regardless of revenue measures. The firm relied entirely on the flawed vendor data and did not purchase supplemental data to identify the missing tobacco retailers. The absence of additional data sources allowed tobacco sellers to bypass the environmental, social, and governance screens.

Chart. Tobacco Retailer Revenue Thresholds in Screening

The Mechanics of the Data Vendor Failure

The reliance on automated third party data feeds created a widespread vulnerability within the portfolio construction process. The firm purchased a standard data package that applied a generic 10 percent revenue threshold for tobacco retailers. This generic threshold directly conflicted with the bespoke marketing claims made in the fund prospectuses. The prospectuses explicitly stated that the funds exclude tobacco companies regardless of revenue measures. The firm possessed the financial resources to purchase supplemental data that identifies the remaining tobacco retailers. Yet, the firm chose to rely solely on the incomplete primary dataset. This decision allowed companies selling tobacco products to enter the portfolios of funds marketed as strictly adhering to environmental, social, and governance principles. The regulator noted that the firm failed to implement any manual oversight to catch the data gaps. The portfolio managers blindly accepted the vendor data without verifying its with the prospectus guarantees.

The Delay in Corrective Action

The timeline of the compliance failure reveals a prolonged period of inaction by the firm. Internal documents showed that executives recognized the limitations of the fossil fuel and tobacco data by September 2020. Even with this explicit knowledge, the firm allowed the funds to continue operating under the flawed screening method. The firm did not immediately halt the purchase of the prohibited securities. The firm also did not problem a public correction to inform existing shareholders about the portfolio contamination. The board of trustees remained uninformed about the data gaps during this period. The firm waited until November 2022 to update the prospectuses to accurately describe the screening limitations. This two year delay compounded the severity of the regulatory violations. The Securities and Exchange Commission emphasized that investment advisers have an immediate duty to correct material misstatements once discovered. The failure to act promptly demonstrated a serious breakdown in the internal compliance culture.

The Absence of Written Policies

The Securities and Exchange Commission highlighted a fundamental breakdown in corporate governance. The regulator found that the firm did not adopt any written policies and procedures in relation to the screening process. The firm marketed the funds as strictly adhering to environmental, social, and governance factors. Yet, the firm operated without a formalized compliance framework to verify the exclusion of banned sectors. The absence of written guidelines meant portfolio managers had no standardized method to audit the third party vendor data. The regulatory order emphasized that investment advisers must implement concrete procedures to verify their marketing claims.

Misleading the Board of Trustees

The regulatory findings detailed specific presentations made to the board of trustees overseeing the exchange traded funds. The firm provided the board with materials claiming the investment model screens out companies involved in certain controversial activities. The presentation headers explicitly stated the funds exclude tobacco. The firm failed to disclose the 10 percent revenue threshold limitation to the board during these presentations. The board approved the fund operations based on incomplete and inaccurate information regarding the screening method. The failure to provide accurate data to the board represents a severe breach of fiduciary duty under the Investment Advisers Act of 1940. The firm allowed the board to operate under a false understanding of the portfolio composition from March 2020 until November 2022.

Statutory Violations and the Regulatory Framework

The inclusion of tobacco retailers triggered multiple statutory violations. The Securities and Exchange Commission charged the firm under Sections 206 of the Investment Advisers Act of 1940. The regulator also referenced Rule 206, which prohibits investment advisers from making false or misleading statements to investors in pooled investment vehicles. The firm also violated Section 34 of the Investment Company Act of 1940. This specific section makes it unlawful for any person to make any untrue statement of material fact in any registration statement or other document filed with the regulator. The absence of written policies violated the requirement for registered investment advisers to adopt and implement written policies reasonably designed to prevent violations of the Advisers Act. The combination of these violations resulted in the $4 million civil penalty.

Fund Liquidation and Market Exit

The firm decided to close the three exchange traded funds. The firm obtained board approval and liquidated the funds on February 5, 2024. The funds held a monthly average cumulative assets under management of approximately $119 million throughout their lifetime. The closure of the funds marked the end of a flawed investment strategy that failed to deliver on its core guarantees. The firm stated that it expects insurance to cover the legal and related expenses incurred in connection with the matter, less a $1 million deductible. The liquidation process returned the remaining capital to investors, it could not erase the years of undisclosed tobacco exposure. The market exit shows the severe consequences of failing to implement a verified screening method.

20 Investigative Questions Answered

The May 2019 Contract and the Granular Data Blind Spots

WisdomTree contracted Vendor A in May 2019 to execute the exclusionary strategy for its environmental, social, and governance funds. Vendor A operated as a third party ratings, research, and analytics firm. The vendor provided monthly updated research identifying corporate involvement in specific products and services. The vendor supplied WisdomTree with detailed methodology documents. These documents outlined the scope and limitations of each available data set. The vendor did not offer a single omnibus data set for fossil fuels. The vendor instead divided the fossil fuel industry into granular subsectors. Subscribers had to purchase each subsector data set individually to achieve total exclusion. The SEC noted that this modular data structure required careful selection by the investment adviser.

WisdomTree purchased only three specific data sets from Vendor A. The firm subscribed to Arctic Oil and Gas Exploration, Thermal Coal, and Oil Sands. The firm deliberately chose not to subscribe to the data sets covering Shale Energy, Oil, and Gas. This purchasing decision created immediate blind spots in the screening process. Companies involved in shale extraction and general oil and gas operations bypassed the screens entirely. The firm launched the funds in March 2020 with these blind spots actively allowing fossil fuel investments into the portfolios. The tobacco screening data from Vendor A contained similar limitations. The tobacco data set only excluded companies deriving more than ten percent of their revenue from tobacco products. This threshold allowed smaller tobacco retailers to enter the funds. The firm failed to cross reference these vendor limitations with the absolute exclusion language printed in the fund prospectuses.

The Vendor B Sector Classification Flaw

WisdomTree recognized the limitations of Vendor A shortly before the March 2020 fund inception. The firm attempted to patch the screening gaps by hiring Vendor B. Vendor B operated as another third party ratings, research, and analytics firm. Vendor B used a different methodology to classify companies. The second vendor categorized companies based on their primary business sector. WisdomTree applied Vendor B data to the screening process executed the application poorly. The firm only used the Energy Sector classification from Vendor B to exclude companies from the funds. The portfolio managers assumed this single sector filter would catch the remaining fossil fuel violators.

This narrow application of Vendor B data ignored fossil fuel companies categorized under other sectors. The Utilities Sector contained numerous companies involved in fossil fuels. Utility companies that distributed natural gas to residential and industrial customers bypassed the Energy Sector screen. Vendor B published the limitations of its sector classifications publicly on its website. WisdomTree had full access to this information failed to adjust its screening parameters. The reliance on a single sector classification meant the funds continued to purchase natural gas distributors and other fossil fuel related entities. The SEC order confirmed that the firm operated with a complete absence of internal policies and procedures regarding how to exclude these companies. The firm treated the vendor data as infallible even with knowledge of the structural gaps in the categorization models.

The September 2020 Internal Discovery and Board Silence

Internal teams at WisdomTree discovered the ongoing screening failures in September 2020. The firm prepared internal ESG Characteristics Reports during this period. An investment research firm that owned Vendor A provided the data for these reports. The reports identified that the funds held positions in companies involved in fossil fuel activities. The data showed that the combination of Vendor A and Vendor B failed to execute the absolute exclusions promised in the fund prospectuses. The firm knew the portfolios contained coal mining, natural gas extraction, and tobacco retail companies. The compliance department possessed the exact names of the violating securities.

WisdomTree did not report these findings to the fund board of directors in September 2020. The firm maintained silence regarding the screening failures for more than two years. The firm continued to market the funds as completely devoid of fossil fuel and tobacco investments. The firm did not revise the prospectuses to reflect the reality of the third party data limitations until November 2022. The SEC determined that the firm made material misstatements to investors during this entire period. The regulator emphasized that investment advisers cannot rely blindly on third party vendors without verifying the accuracy of the data against their own prospectus claims. The SEC order explicitly stated that WisdomTree failed to implement any written policies and procedures to govern the exclusionary screening process. This administrative failure allowed the flawed vendor data to dictate portfolio construction without internal oversight.

Vendor Data Subscription and Omission Analysis

The following table illustrates the specific data sets WisdomTree purchased and omitted from Vendor A, directly resulting in the inclusion of fossil fuel companies in the portfolios.

The Five Vendor A Data Sets and the Subscription Omissions

The Securities and Exchange Commission investigation exposed a precise mechanical failure in the environmental screening process at WisdomTree Asset Management. The federal regulator found that the firm relied on a primary data provider, identified in the regulatory order as Vendor A, to filter out fossil fuel investments. Vendor A offered five distinct data sets to track fossil fuel extraction activities. These categories included Arctic oil and gas exploration, thermal coal, oil sands, shale energy, and general oil and gas. The investment adviser chose to purchase only three of these five data sets. The firm subscribed to the lists for Arctic oil and gas exploration, thermal coal, and oil sands. The firm explicitly declined to purchase the data sets for shale energy and general oil and gas. This subscription decision created an immediate structural gap in the compliance framework.

By omitting the shale energy and the general oil and gas data sets, the firm stripped its own funds of the ability to detect companies engaged in those specific extraction methods. The prospectus guaranteed investors that the funds would exclude companies involved in fossil fuels. The actual data architecture only supported exclusions for a narrow slice of the fossil fuel industry. The firm possessed the oil sands data operated completely blind regarding shale energy operations and conventional oil and gas drilling.

20 Investigative Questions Answered

The Vendor B Sector Classification Failure

Internal records obtained by the Securities and Exchange Commission showed that WisdomTree executives realized the data gap existed shortly before launching the funds in March 2020. The firm recognized that the three purchased data sets from Vendor A failed to capture numerous companies involved in fossil fuels. Instead of purchasing the missing shale energy and oil and gas data sets from Vendor A, the firm attempted to patch the hole using a secondary provider. The firm contracted Vendor B to supply additional screening data.

Vendor B did not offer specific data sets for fossil fuel extraction methods. Vendor B only classified companies by their primary macroeconomic business sector. The secondary provider used a broad energy sector tag. This sector based classification proved entirely insufficient for environmental screening. companies generate substantial revenue from fossil fuels while operating under different primary sector classifications. A utility company might extract shale gas while being classified as a utility rather than an energy company. A materials company might own oil reserves while being classified as a steelmaker. The sector tag from Vendor B failed to identify these diversified operations.

The Financial Impact of Missing Shale Data

The refusal to purchase the shale energy data set led directly to unauthorized portfolio holdings. The Securities and Exchange Commission documented multiple instances where the data gap allowed fossil fuel companies to enter the supposedly green funds. The WisdomTree U. S. ESG Fund purchased shares in a utility holding company that operated a large natural gas distribution network and maintained an active operating division engaged in shale gas extraction. The fund held this shale gas extractor from June 2022 until March 2023. The screening system could not flag the company because the firm operated without the shale energy data set from Vendor A, and Vendor B classified the company as a utility rather than an energy firm.

The data gap also allowed a major steelmaker to enter the portfolio. The steelmaker owned a 49 percent stake in a company that maintained properties with active oil and gas reserves. The fund held this steelmaker from June 2021 until the fund liquidation in February 2024. The absence of the general oil and gas data set from Vendor A meant the screening algorithm never checked for these specific reserves.

The November 2022 Prospectus Redefinition

The Securities and Exchange Commission Division of Examinations confronted the firm about these unauthorized holdings. The firm responded by altering the rules rather than fixing the data gap. In November 2022, the firm updated the prospectuses for the funds. The revised documents introduced a highly restricted definition of fossil fuel activities. The new prospectus stated that the funds would only exclude companies involved in Arctic oil and gas, oil sands, or thermal coal. The firm aligned the public marketing documents with the three data sets it had actually purchased from Vendor A. The firm removed the broad guarantee to exclude all fossil fuel companies. The regulator noted that this retroactive definition change confirmed the initial misstatements to investors.

Fossil Fuel Data Subscription Status Chart

The following chart visualizes the data sets offered by Vendor A and the subscription status chosen by the investment adviser.

The regulatory documents confirm that the firm paid 4 million dollars in civil penalties for these compliance failures. The firm liquidated the three exchange traded funds on February 5, 2024. The liquidation ended the trading history of the funds after years of operating with incomplete environmental data screens. The failure to purchase the shale energy data set stands as the primary mechanical cause of the fossil fuel screening collapse.

The Mechanics of the Data Screening Process

The environmental screening process required precise inputs to function correctly. The investment adviser built a quantitative model to select securities for the exchange traded funds. This model relied entirely on the data feeds from third party vendors. When the model received the monthly data updates from Vendor A, it automatically excluded any company flagged on the purchased lists. Because the firm never purchased the shale energy list, the model never received the instruction to exclude shale gas extractors. The quantitative model operated exactly as programmed, the programming operated without the necessary data inputs to fulfill the prospectus guarantees.

Vendor A updated its research monthly and made the updated data available to subscribers for access and download. Vendor A provided the firm with detailed methodology documents. These documents explained the scope and the limitations of each data set. The Securities and Exchange Commission order stated that Vendor A did not offer a single all inclusive fossil fuel list. Subscribers had to purchase the specific modules they needed. The firm knew that the Arctic oil and gas, thermal coal, and oil sands modules did not cover shale energy or conventional oil and gas. The firm made a deliberate financial decision to limit its data subscription.

The Extended Holdings of Unauthorized Securities

The data gap resulted in prolonged exposure to fossil fuel assets. The WisdomTree International ESG Fund held a major natural gas distributor with interests in shale gas extraction from March 2020 until December 2023. This holding period spanned nearly four years. The screening model failed to flag the distributor because the firm operated without the shale energy data module. The same fund held a specialty chemical company that provided chemicals for offshore and onshore drilling. The fund held this chemical company from June 2021 to September 2021, and again from June 2022 to February 2024. The absence of the general oil and gas data module allowed this chemical provider to bypass the environmental screens.

The WisdomTree Emerging Markets ESG Fund experienced similar compliance failures. The fund held a company owning natural gas distributors and infrastructure from March 2020 until February 2024. The fund also held a firm with a 25 percent stake in an oil refining and distribution company from December 2020 until September 2021. The secondary screening attempt using Vendor B failed to catch these companies because Vendor B classified them outside the primary energy sector. The reliance on broad sector tags instead of specific operational data proved fatal to the compliance framework.

20 Investigative Questions Answered

WisdomTree announced the planned closure and liquidation of three exchange traded funds on December 12 2023. The firm targeted the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund and the WisdomTree U. S. ESG Fund for termination. The board of directors approved the liquidation due to an absence of investor demand and limited prospects for future growth. The funds ceased trading on January 26 2024. The firm stopped accepting creation orders after the close of business on that Friday.

The New York based asset manager set a strict timeline for the final days of the three funds. Shareholders had until January 26 2024 to sell their shares on the open market. The funds traded on two different exchanges. The CBOE hosted RESD and RESE. The NYSE Arca hosted RESP. Investors who chose to sell before the deadline received the market price and paid standard brokerage commissions. The funds deviated from their stated investment objectives as portfolio managers increased cash holdings to prepare for the shutdown.

Liquidation Timeline for RESD, RESE and RESP

The final Net Asset Value calculation occurred on February 2 2024. The official liquidation date followed on February 5 2024. The system automatically redeemed any remaining shares for cash. The distribution included the net asset value along with any accrued capital gains and dividends. The proceeds went directly into the brokerage accounts of the shareholders. Foreside Fund Services LLC operated as the distributor for the funds in the United States.

Final Liquidation Payout per Share

The liquidation payouts varied across the three funds. Shareholders of the WisdomTree U. S. ESG Fund received 50. 7718 dollars per share. Investors holding the WisdomTree International ESG Fund collected 29. 1393 dollars per share. The WisdomTree Emerging Markets ESG Fund returned 27. 8076 dollars per share to its investors. The firm bore the ordinary fees and expenses for operating the funds through the liquidation date. The funds themselves paid the brokerage fees and taxes associated with unwinding the portfolio investments.

The three funds carried different expense ratios during their operational lifespan. The RESE fund charged the highest fee at 0. 32 percent. The RESD fund followed with a 0. 30 percent expense ratio. The RESP fund offered the lowest cost at 0. 28 percent. The closure of these funds preceded the public disclosure of the Securities and Exchange Commission enforcement action. The federal regulator later issued a Wells notice and levied a 4 million dollar civil penalty against WisdomTree for greenwashing violations connected to these exact funds.

WisdomTree published a detailed frequently asked questions document to guide investors through the liquidation process. The firm instructed shareholders that no action was required to receive the automatic cash redemption. The asset manager warned that the liquidation process causes the funds to deviate from their environmental, social and governance investment strategies. Portfolio managers began selling off the underlying securities and accumulating cash reserves starting on January 26 2024. This cash accumulation ensured the funds had sufficient liquidity to meet the final redemption obligations.

The closure of RESD, RESE and RESP marked the end of a specific product line for the global financial innovator. The firm managed approximately 97. 7 billion dollars in global assets at the time of the announcement. The three liquidated funds held a combined average of 119 million dollars during their operational period. The decision to close the funds aligned with a broader industry trend of asset managers pruning underperforming products. The timing of the closure proved significant. The firm liquidated the evidence of its flawed screening process just months before the Securities and Exchange Commission finalized its investigation into the greenwashing claims.

The delisting process required coordination between WisdomTree and the respective stock exchanges. The CBOE handled the removal of the International ESG Fund and the Emerging Markets ESG Fund. The NYSE Arca processed the delisting for the U. S. ESG Fund. Exchange officials halted trading for all three ticker symbols immediately after the closing bell on January 26 2024. Market makers and authorized participants ceased quoting prices for the funds. The removal of the funds from the active trading boards finalized the public market phase of the liquidation.

Investors who held their positions past the final trading day lost the ability to control their exit price. The final Net Asset Value calculation on February 2 2024 determined the exact payout for these remaining shareholders. The calculation divided the total value of the liquidated cash reserves by the number of outstanding shares. The firm instructed brokers and financial intermediaries to process the cash distributions on February 5 2024. The automated nature of the payout ensured that retail investors received their funds without submitting manual redemption requests.

The financial load of the liquidation fell on both the asset manager and the funds. WisdomTree agreed to cover the ordinary operating expenses up to the final liquidation date. The funds absorbed the transaction costs associated with selling off the portfolio assets. These costs included brokerage commissions and taxes generated by the rapid liquidation of the underlying stocks. The forced sale of assets in a short timeframe can negatively impact the final execution prices. The portfolio managers executed the trades over a one week period to convert the remaining equity positions into cash.

The closure of the three funds eliminated the specific investment vehicles at the center of the regulatory investigation. The Securities and Exchange Commission focused its enforcement action entirely on the prospectus claims and screening failures of RESD, RESE and RESP. The liquidation removed the noncompliant products from the market before the agency announced its findings. The firm replaced the funds with cash distributions rather than merging them into other existing products. A merger moves the historical performance and possible liabilities to a surviving fund. The outright liquidation severed the product lineage completely.

The expense ratios of the liquidated funds reflected the premium pricing frequently associated with specialized screening strategies. The 0. 32 percent fee for the Emerging Markets ESG Fund generated revenue for the firm based on the total assets under management. The 0. 30 percent fee for the International ESG Fund and the 0. 28 percent fee for the U. S. ESG Fund operated under the same structure. The failure of the third party data vendors to properly screen the investments meant shareholders paid these premium fees for a flawed product. The firm collected these management fees throughout the violation period from March 2020 to November 2022.

20 Investigative Questions Answered

The International ESG Fund and Coal Transport

The Securities and Exchange Commission identified specific violations within the WisdomTree International ESG Fund. The fund began operations in March 2020. The prospectus guaranteed that the fund excluded companies involved in fossil fuels. Yet, the fund immediately purchased shares in a freight company with a substantial coal transport business. The fund held these securities from March 2020 until December 2021.

Investors allocated capital to the International ESG Fund under the strict assumption that their money avoided the fossil fuel supply chain. The inclusion of a major coal transporter directly contradicted the marketing materials. The firm failed to implement basic screening procedures to catch transport companies that derived significant revenue from moving thermal coal across global supply lines. The absence of proper oversight allowed this holding to remain in the portfolio for 21 months.

The United States ESG Fund and Fossil Fuel Rail Transport

The domestic equivalent, the WisdomTree U S ESG Fund, committed identical violations. The SEC order detailed how this fund purchased shares in a freight railroad company. This specific railroad hauled coal, fracking sand, petroleum coke, and crude oil. The fund acquired the railroad securities in June 2020 and held them until September 2020. The fund then repurchased the same railroad securities in December 2020 and maintained the position until December 2021.

The railroad company actively participated in the extraction and distribution of fossil fuels by providing the necessary logistics network. Fracking sand is a primary component in hydraulic fracturing for natural gas and oil. Petroleum coke is a carbon rich solid material derived from oil refining. Crude oil and coal represent the most carbon intensive energy sources. The fund managers ignored the obvious connection between the railroad operations and the fossil fuel industry.

Data Vendor Failures and Missing Exclusions

WisdomTree relied on third party data vendors to screen out prohibited companies. The primary vendor offered separate data sets for Arctic oil and gas exploration, thermal coal, and oil sands. The vendor explicitly warned WisdomTree that the basic data packages did not identify all companies involved in fossil fuel related businesses. The firm declined to purchase the supplemental data sets covering shale energy, oil, and gas.

The SEC investigation revealed that the firm knew about the data limitations shortly after the funds launched. The compliance department recognized that the screening process failed to exclude all fossil fuel companies. The firm continued to market the funds with the exclusionary claims. The firm failed to notify the board of trustees about the data gaps. The firm also failed to update the prospectuses to reflect the actual investment practices.

The Compliance Department and Internal Discoveries

The Securities and Exchange Commission order detailed how the internal compliance department at WisdomTree discovered the screening failures. The compliance officers reviewed the portfolio holdings and identified the freight companies. The officers realized that the third party data vendors did not flag the coal transport operations. The firm documented these specific holdings internally by September 2020.

The compliance team failed to establish written policies to ensure consistent environmental and social screening. The absence of formal procedures allowed the portfolio managers to continue holding the prohibited assets. The firm prepared internal characteristics reports for the funds. These reports showed the exposure to the fossil fuel sector. The executives reviewed these reports took no action to divest the freight companies or the railroad.

The Board of Trustees and Fiduciary Duty

Investment advisers owe a fiduciary duty to their clients and the fund oversight boards. WisdomTree presented regular updates to the board of trustees. During a presentation on June 6, 2022, the firm explicitly told the board that the funds excluded companies involved in fossil fuels. The firm made these statements while the funds actively held the freight railroad and other prohibited assets.

The firm never informed the board about the limitations of the third party data. The firm never disclosed that the primary vendor failed to capture coal transport companies. The board of trustees relied on the inaccurate presentations to approve the continued operation of the funds. The SEC these misleading presentations as a primary factor in the 4 million dollar penalty.

The Financial Impact and Asset Liquidation

The three funds held a combined total of approximately 119 million dollars in assets under management. The investors paid management fees based on the false premise of strict environmental screening. The inclusion of the coal transport freight company and the fossil fuel railroad artificially increased the financial performance of the funds during periods when energy stocks rallied.

The firm recognized the severity of the regulatory violations. The executives sought board approval to close the funds. The firm liquidated the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund, and the WisdomTree U S ESG Fund on February 5, 2024. The liquidation occurred eight months before the SEC published the final cease and desist order.

Regulatory Action and Final Settlement

The SEC published the cease and desist order on October 21, 2024. The agency imposed a 4 million dollar civil penalty against the firm. The firm consented to the order without admitting or denying the findings. The regulatory action highlighted the serious nature of the misstatements.

The enforcement action demonstrates the strict standard applied to environmental, social, and governance marketing claims. Investment advisers must adhere to their stated investment criteria. The failure to screen out freight companies and railroads involved in coal transport represents a direct violation of the antifraud provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940.

Visualizing the Holding Periods for Freight Assets

The following chart illustrates the specific duration that the WisdomTree funds held the prohibited freight and rail assets between 2020 and 2021.

20 Investigative Questions Answered

The Vendor B Utilities Sector Loophole

The Securities and Exchange Commission published an order on October 21, 2024. The document detailed how WisdomTree Asset Management Inc. failed to exclude natural gas distributors from three exchange traded funds. The firm marketed the WisdomTree U. S. ESG Fund, the WisdomTree Emerging Markets ESG Fund, and the WisdomTree International ESG Fund as environmentally conscious portfolios. The prospectuses stated the funds would exclude companies involved in fossil fuels regardless of revenue. Yet the funds invested heavily in utility holding companies that distributed natural gas.

WisdomTree relied on two third party data providers to screen investments. The primary provider was Vendor A. Vendor A supplied data sets for Arctic oil, thermal coal, and oil sands. The vendor did not supply data for shale energy or natural gas distribution. WisdomTree realized the Vendor A data was incomplete by March 2020. The firm then contracted Vendor B to supplement the screening method.

Vendor B categorized companies by their primary business sector. WisdomTree only used the Energy Sector classification from Vendor B to exclude companies from the funds. Vendor B placed natural gas distributors into the Utilities Sector. The Utilities Sector included companies that distributed natural gas to residential and industrial customers. WisdomTree did not use the Utilities Sector data to screen out fossil fuel investments. This decision allowed multiple natural gas distributors to bypass the environmental filters and enter the portfolios.

Fund by Fund Breakdown of Natural Gas Holdings

The SEC order provided exact dates and descriptions of the natural gas assets held by the three funds. The WisdomTree U. S. ESG Fund held multiple utility holding companies that owned natural gas distribution utilities. The fund acquired these assets in March 2020. The fund held these assets until February 5, 2024. The firm liquidated the U. S. ESG Fund on that date.

The WisdomTree U. S. ESG Fund also held a specific utility holding company from June 2022 until March 2023. This company owned a large natural gas distribution utility. The company also operated a division engaged in the extraction of shale gas. The inclusion of a shale gas extractor directly violated the prospectus mandate to exclude fossil fuel companies.

The WisdomTree Emerging Markets ESG Fund held a company that owned natural gas distributors and infrastructure. The fund maintained this position from March 2020 to February 2024. The same fund held a pure natural gas distributor from March 2020 to March 2021. The fund also held a firm with a 25 percent stake in an oil refining and distribution company from December 2020 to September 2021.

The WisdomTree International ESG Fund held a major natural gas distributor. This distributor held interests in shale gas extraction. The International ESG Fund maintained this investment from March 2020 to December 2023.

Visualizing the Natural Gas Exposure Timeline

The following chart illustrates the duration of natural gas and utility holding company investments across the three funds. The data reflects the findings from the October 21, 2024 SEC order.

The Scope of Natural Gas Distribution

Natural gas distribution involves the transportation of natural gas from transmission pipelines to residential, commercial, and industrial customers. The utility holding companies held by the WisdomTree funds operated extensive distribution networks. These networks delivered fossil fuels directly to end users. The extraction of shale gas, which was conducted by one of the utility holding companies, involves hydraulic fracturing. Hydraulic fracturing is a highly scrutinized fossil fuel extraction method. The inclusion of a company engaged in shale gas extraction directly contradicted the environmental marketing of the funds.

The SEC investigation revealed that WisdomTree did not purchase supplemental data to identify companies involved in shale gas extraction. Vendor A offered separate data sets for Arctic oil and gas exploration, thermal coal, and oil sands. WisdomTree purchased these three data sets. Vendor A also offered data sets for shale energy, oil, and gas. WisdomTree did not purchase the shale energy, oil, and gas data sets. This decision left a massive blind spot in the screening method. The firm relied on the Vendor B Energy Sector classification to cover the blind spot. The Vendor B classification failed to catch the utility holding companies that distributed natural gas.

Board of Trustees Presentations

WisdomTree presented information to the board of trustees multiple times during the violation period. The firm made a presentation to the board on June 6, 2022. The presentation claimed that the ESG funds successfully excluded companies involved in fossil fuels. The firm did not disclose that the funds held natural gas distributors. The firm did not explain that Vendor B classified natural gas distributors under the Utilities Sector. The board of trustees remained unaware of the data limitations and the resulting fossil fuel exposure.

The SEC order emphasized that WisdomTree had a fiduciary duty to provide accurate information to the board. The failure to disclose the screening limitations constituted a material misstatement. The board relied on the presentations to oversee the funds and protect the investors. The inaccurate presentations prevented the board from taking corrective action between March 2020 and November 2022.

The Failure to Rectify the Prospectus

WisdomTree recognized the limitations of the data sets by September 2020. The firm prepared internal reports that showed the funds held fossil fuel assets. The firm did not inform the board of trustees about the data limitations. The firm also did not update the prospectuses to reflect the actual investment practices. The prospectuses continued to state that the funds excluded all fossil fuel companies regardless of revenue.

The SEC Division of Examinations conducted a review of WisdomTree. The examination forced the firm to update the prospectuses. The firm issued revised prospectuses on November 1, 2022, and November 2, 2022. The revised documents changed the definition of fossil fuel activities. The new definition only included Arctic oil gas, oil sands, and thermal coal. The revised prospectuses removed the guarantee that the funds screened out all companies involved with fossil fuels regardless of revenue.

The SEC order confirmed that WisdomTree absence written policies and procedures to govern the screening method. The absence of formal procedures allowed portfolio managers to rely entirely on the flawed third party data. The portfolio managers did not manually verify if the companies in the Utilities Sector distributed natural gas. The firm did not establish a method to test or verify the data provided by Vendor A and Vendor B. The compliance failure violated the Investment Advisers Act of 1940. The SEC noted that the firm had a duty to adopt and implement written policies reasonably designed to prevent violations of the Advisers Act. The failure to implement these policies directly caused the ESG funds to invest in natural gas distribution. This compliance failure resulted in a $4 million civil penalty.

The Liquidation of the U. S. ESG Fund

The WisdomTree U. S. ESG Fund faced liquidation on February 5, 2024. The fund held the utility holding companies until the final day of operation. The SEC order noted that the fund maintained these natural gas assets for nearly four years. The liquidation ended the trading of the U. S. ESG Fund. The Emerging Markets ESG Fund and the International ESG Fund continued to operate after the violation period ended in November 2022.

The SEC Division of Enforcement Acting Director Sanjay Wadhwa stated that investment advisers must do what they say and say what they do. The inclusion of natural gas distributors in funds marketed as environmentally conscious violated the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The federal regulator censured WisdomTree and ordered the firm to cease and desist from future violations.

20 Question Fan Out. WisdomTree SEC Penalty Facts

Absence of Written Policies. The SEC Findings on Internal Screening Procedures

The Securities and Exchange Commission penalized WisdomTree Asset Management $4 million on October 21, 2024. The regulatory agency found the firm operated three environmental, social, and governance funds without any written policies to direct its internal screening procedures. WisdomTree marketed the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund, and the WisdomTree U. S. ESG Fund as portfolios that strictly excluded fossil fuel and tobacco companies. Investigators discovered the firm failed to adopt and implement standard operating procedures to verify these exclusions.

WisdomTree relied on two external data providers to screen investments. The firm purchased baseline data from a primary vendor declined to buy supplemental data sets covering shale energy, oil, and gas. The firm used a second vendor exclusively to classify companies within the energy sector. This narrow application meant WisdomTree completely missed utility companies that distributed natural gas. The SEC order confirmed the firm operated without a detailed fossil fuel screening system across all sectors.

Internal reports alerted WisdomTree managers to the screening failures in September 2020. The documents showed the funds continued to hold securities in coal transportation, natural gas extraction, and retail tobacco sales. Even with this knowledge, the firm did not update its prospectuses or inform the board of trustees until November 2022. The absence of written policies allowed these compliance gaps to remain open for more than two years.

Data Provider Gaps and Investment Overlaps

The regulatory filings detail specific holdings that violated the stated investment criteria. The WisdomTree International ESG Fund held shares in a freight company with substantial coal transport operations from March 2020 to December 2021. The WisdomTree Emerging Markets ESG Fund owned stock in a natural gas distributor until March 2021. The WisdomTree U. S. ESG Fund maintained positions in multiple utility holding companies that owned natural gas distribution networks. The SEC concluded that the absence of formal, written screening procedures directly caused these prohibited investments to enter and remain in the portfolios.

Financial Impact and Penalty Breakdown

20 Investigative Questions Answered

The September 2020 Discovery and the Two Year Silence

WisdomTree Asset Management presented a clear investment strategy to the Board of Trustees in March 2020. The firm guaranteed that three exchange traded funds would exclude companies involved in fossil fuels and tobacco. The Board relied on these presentations to approve the fund operations and oversee compliance. The Securities and Exchange Commission found that the firm discovered severe limitations in its screening data by September 2020. The third party vendor data failed to identify numerous companies involved in coal mining, natural gas extraction, and tobacco retail sales.

The firm possessed this knowledge chose not to inform the Board of Trustees. The asset manager continued to provide the Board with materials that falsely represented the exclusion of these controversial products. The firm maintained this silence for over two years. The Board continued to govern the funds under the false impression that the investment strategy aligned with the stated environmental and social goals. The firm disclosed the screening failures to the Board in November 2022. This delayed communication formed a central component of the enforcement action.

Data Visualization. Board Communication Timeline

Fiduciary Failures Under the Investment Company Act of 1940

The relationship between an investment adviser and a fund Board of Trustees requires absolute transparency. The Securities and Exchange Commission charged the firm with violating the antifraud provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The regulatory agency determined that the presentations to the Board contained material misstatements regarding the controversial products. The firm failed to purchase supplemental data that would have corrected the screening errors. The firm presented environmental characteristics reports to the Board that omitted the ongoing investments in fossil fuels and tobacco.

Sanjay Wadhwa served as the Acting Director of the Division of Enforcement during this investigation. He stated that investment advisers must do what they say and say what they do. The firm failed to meet this standard in its communications with the Board. The regulatory order emphasized that the firm knew the data contained errors yet continued to market the funds and report to the Board as if the exclusions worked perfectly. The firm consented to the entry of the order without admitting or denying the findings.

Enforcement Division Findings on Policy Deficiencies

The Board of Trustees relies on written policies and procedures to ensure compliance with investment strategies. The Securities and Exchange Commission found that WisdomTree failed to adopt any written policies and procedures regarding the screening process. The firm used the vendor data to exclude companies involved in fossil fuel and tobacco related activities without a formalized framework. The absence of these policies prevented the Board from properly auditing the screening method.

The Asset Management Unit of the Enforcement Division conducted the investigation. Salvatore Massa and Joshua Tannen led the inquiry. Lee A. Greenwood, Andrew Dean, and Corey Schuster supervised the team. The investigators determined that the firm operated without the necessary internal controls to verify the data accuracy before presenting it to the Board. The firm agreed to a cease and desist order and a censure. The firm also paid a four million dollar civil penalty within ten days of the order entry.

The Impact of Omitted Supplemental Data

The Board of Trustees expected the firm to use all available resources to meet the exclusionary criteria. The Securities and Exchange Commission order explicitly noted that the firm failed to purchase supplemental data. The primary vendor data only identified a fraction of the companies involved in fossil fuel extraction and tobacco retail. The firm knew that other data providers offered the missing information. The firm chose to save costs rather than purchase the necessary supplemental data to fulfill its pledge to the Board.

This decision directly caused the funds to hold securities in coal mining, coal transportation, and natural gas distribution. The Board remained unaware of these holdings because the firm did not disclose the decision to skip the supplemental data purchase. The regulatory agency highlighted this specific failure as a breach of the compliance rule in the Investment Advisers Act. The firm prioritized operational convenience over accurate Board reporting. The Board could not exercise proper oversight without knowing that the firm deliberately ignored available data sources that would have identified the controversial products.

The February 2024 Fund Liquidations

The misstatements to the Board of Trustees led to the demise of the three exchange traded funds. The firm liquidated the WisdomTree International ESG Fund, the WisdomTree Emerging Markets ESG Fund, and the WisdomTree U. S. ESG Fund in February 2024. The Board oversaw this liquidation process after learning the full extent of the screening failures. The closure of these funds marked the final chapter of the compliance failure.

The regulatory action serves as a strict warning to asset managers regarding Board communications. The Securities and Exchange Commission requires firms to immediately disclose any data limitations that contradict stated investment strategies. The failure to inform the Board of Trustees about the controversial product investments resulted in severe financial and reputational damage. The firm updated the prospectuses in November 2022 and subsequently closed the funds.

Financial Mechanics of the SEC ESG Settlement

WisdomTree Asset Management Inc. incurred strict financial penalties and heavy legal costs during the 2024 Securities and Exchange Commission greenwashing enforcement action. The regulatory agency fined the firm $4. 0 million for making material misstatements regarding its environmental, social, and governance investment strategies. Beyond the direct civil money penalty, the firm accumulated $4. 1 million in legal and related expenses during the nine months of 2024 to navigate the regulatory probe.

To mitigate the financial damage, the company activated its corporate liability insurance. The firm filed claims to recover the legal fees, subject to a $1. 0 million insurance deductible. The insurance policy strictly covered the legal defense costs, leaving the company to absorb the full $4. 0 million civil penalty directly. The penalty qualified as a non deductible expense for corporate income tax purposes, directly impacting the firm’s tax rate for the third quarter of 2024.

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Accounting for the $8. 1 Million Gross Settlement Cost

The financial documentation from the third quarter of 2024 details the exact monetary damage caused by the ESG screening failures. The firm reported a gross cost of $8. 1 million directly tied to the regulatory breach. This total includes the $4. 0 million civil money penalty and $4. 1 million in legal and related expenses. The legal fees accumulated over the nine months of the year as the firm negotiated the final settlement terms with the federal regulator.

Corporate liability insurance provided a financial buffer against the legal costs. The firm recognized $3. 7 million in other revenue during the third quarter of 2024, representing the expected insurance recovery. This recovery offset the majority of the $4. 1 million in legal fees. The firm absorbed the remaining legal costs through its $1. 0 million insurance deductible and other non covered expenses. The insurance policy explicitly excluded the $4. 0 million civil penalty, forcing the firm to pay the fine directly from its corporate reserves.

Tax of the Non Deductible Penalty

The SEC penalty triggered secondary financial consequences through corporate taxation rules. Federal tax law prohibits companies from deducting civil money penalties paid to government agencies. The firm reported the $4. 0 million SEC penalty as a non deductible expense in its third quarter 2024 financial filings. This classification, combined with a $30. 6 million non deductible loss on the extinguishment of convertible notes, severely distorted the firm’s tax rate.

The company reported an income tax rate of 216. 0 percent for the third quarter of 2024, resulting in an income tax expense of $8. 4 million. The statutory federal tax rate stands at 21. 0 percent. The massive deviation from the statutory rate shows the financial impact of regulatory fines. The non deductible nature of the penalty means the firm paid the $4. 0 million using after tax dollars, increasing the true cost of the ESG misstatements.

Visualizing the Settlement Costs and Recoveries

The following chart breaks down the gross costs, insurance recoveries, and the net financial impact of the SEC ESG settlement on the firm’s 2024 balance sheet.

Revenue Recognition and Operating Margins

The timing of the insurance recovery played a specific role in the firm’s third quarter 2024 earnings report. The firm recognized the $3. 7 million expected insurance payout as other revenue during the quarter ending September 30, 2024. This accounting maneuver directly boosted the reported operating revenues to $113. 2 million, representing a 5. 7 percent increase from the prior quarter.

The firm reported an operating income margin of 36. 0 percent for the third quarter, an increase of 4. 7 points compared to the previous quarter. The higher revenues, which included the $3. 7 million insurance recovery, caused this margin expansion. The firm also benefited from lower professional fees related to a separate activist investor campaign during the same period. The combination of the insurance payout and reduced activist defense costs helped stabilize the operating margin even with the ongoing SEC settlement expenses.

The $1. 0 million insurance deductible represents the threshold the firm must cross before the insurance carrier assumes financial responsibility for the legal defense. By absorbing the initial legal costs up to the deductible amount, the firm limits the carrier’s exposure to smaller claims. In the case of the SEC ESG settlement, the $4. 1 million in legal fees easily surpassed the deductible, triggering the $3. 7 million recovery. The remaining $400, 000 difference between the gross legal fees and the insurance recovery represents the deductible and any specific legal expenses excluded from the policy coverage.

Corporate Liability Coverage for Regulatory Actions

Asset management firms routinely purchase corporate liability insurance to protect against regulatory investigations and shareholder lawsuits. These policies cover the cost of hiring outside legal counsel, forensic accountants, and data consultants required to respond to federal subpoenas. The policies do not cover the actual fines or penalties levied by the regulators, as doing so would violate public policy by eliminating the punitive nature of the fines.

WisdomTree used its liability coverage to fund the defense against the SEC enforcement division. The regulatory probe focused on three specific exchange traded funds and their failure to adhere to the stated environmental, social, and governance investment criteria. The firm hired external legal teams to manage the document production, conduct internal reviews, and negotiate the final settlement terms with the SEC staff. These activities generated the $4. 1 million in legal and related expenses recorded during the nine months of 2024.

The $1. 0 million insurance deductible served as the self insured retention limit. The firm paid the $1. 0 million of the legal expenses directly from its operating capital. Once the legal bills exceeded this threshold, the insurance carrier began reimbursing the firm for the subsequent costs, up to the policy limit. The $3. 7 million recovery recognized in the third quarter of 2024 indicates that the carrier accepted the claim and agreed to cover the eligible expenses above the deductible.

The SEC officially published the final administrative order on October 21, 2024. The publication of the order finalized the $4. 0 million civil penalty and concluded the active phase of the regulatory investigation. By finalizing the settlement in October, the firm secured the exact figures needed to close out the legal expense accounting for the fiscal year. The prompt resolution allowed the firm to cap its legal defense costs at the $4. 1 million mark, preventing further depletion of its operating capital and finalizing the insurance claim process.

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Section 206(2). Negligence Based Fraud and Deceit

The Securities and Exchange Commission charged WisdomTree with violating Section 206(2) of the Investment Advisers Act of 1940. This specific statute prohibits an investment adviser from engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client. Federal courts and the SEC interpret this section with a specific legal threshold. The regulator does not need to prove scienter to establish a violation. Scienter defines the deliberate intent to deceive, manipulate, or defraud investors. Instead, a violation of Section 206(2) can rest entirely on a showing of negligence.

WisdomTree breached this negligence standard by making inaccurate statements to the board of trustees for the ESG funds. The firm presented official materials claiming the investment strategy would strictly exclude companies involved in fossil fuels and tobacco. The firm failed to verify if the third party data vendors actually screened out these exact sectors. This failure to verify the data inputs constituted negligence under the federal statute. The funds subsequently invested in coal mining and natural gas extraction companies. This outcome operated as a deceit upon the investors who relied on the stated investment criteria. The SEC determined that the firm failed to exercise reasonable care in overseeing the ESG screening process.

Section 206(4) and Rule 206(4) 8. Misstatements in Pooled Investment Vehicles

Section 206(4) of the Advisers Act grants the SEC broad authority to define and prescribe rules to prevent fraudulent or manipulative practices by investment advisers. Under this statutory authority, the SEC promulgated Rule 206(4) 8. This rule specifically advisers managing pooled investment vehicles. Exchange traded funds qualify as pooled investment vehicles under federal securities laws. The rule prohibits these advisers from making untrue statements of a material fact or omitting material facts necessary to make the statements not misleading.

WisdomTree managed the three ESG funds as pooled investment vehicles. The firm published prospectuses for these funds between March 2020 and November 2022. The documents explicitly guaranteed the exclusion of fossil fuel and tobacco companies regardless of revenue measures. The SEC determined these statements were materially false. The funds held securities in companies directly involved in the prohibited sectors. The firm violated Rule 206(4) 8 by disseminating these untrue statements to the investing public. The regulator emphasized that investors use prospectus disclosures to make capital allocation decisions. Providing false ESG screening parameters directly distorted the market information available to these investors.

Section 206(4) and Rule 206(4) 7. The Compliance Failure

The SEC also charged WisdomTree for violating Rule 206(4) 7. This regulation requires registered investment advisers to adopt and implement written compliance policies and procedures. These procedures must be reasonably designed to prevent violations of the Advisers Act. The rule forces firms to establish internal controls that catch errors before they reach the public or the fund portfolios.

The SEC investigation revealed a complete absence of written policies governing the ESG screening process at WisdomTree. The firm did not adopt any specific procedures to ensure the third party data matched the exclusionary criteria promised in the prospectuses. The firm relied on vendor data without a formalized verification process. This compliance failure allowed the prohibited investments to enter the fund portfolios unnoticed by internal audits. The SEC highlighted this absence of written policies as a direct violation of Rule 206(4) 7. The regulator noted that establishing an ESG fund requires corresponding internal controls to monitor the specific ESG claims. WisdomTree launched the funds without building the necessary compliance infrastructure to support the marketing claims.

Section 34(b) of the Investment Company Act of 1940

to the Advisers Act violations, the SEC charged WisdomTree under Section 34(b) of the Investment Company Act of 1940. This section makes it unlawful for any person to make any untrue statement of a material fact in any registration statement, application, report, or other document filed with the SEC. The statute ensures the integrity of the public filing system.

The three ESG funds operated as registered investment companies. WisdomTree filed registration statements and prospectuses for these funds with the federal regulator. The inclusion of the false ESG screening claims in these official SEC filings triggered the Section 34(b) violation. The firm represented to the federal government that the funds would not hold fossil fuel or tobacco assets. The actual holdings contradicted these filings. The firm consented to a cease and desist order covering all these statutory violations and paid a $4 million civil penalty on October 21, 2024.

Statutory Violations Breakdown Chart

The Absence of Section 206(1) Charges

The SEC enforcement action notably excluded charges under Section 206(1) of the Advisers Act. This distinction carries serious legal weight. Section 206(1) prohibits an adviser from employing any device, scheme, or artifice to defraud any client. To secure a conviction or settlement under Section 206(1), the SEC must prove scienter. The regulator must demonstrate that the firm intentionally set out to defraud the investors.

By charging WisdomTree under Section 206(2) instead of Section 206(1), the SEC acknowledged the absence of malicious intent. The firm did not build the ESG funds as a deliberate scam. The firm contracted a third party vendor to supply the screening data. The violation occurred because the firm failed to supervise the vendor data and failed to verify the outputs against the marketing claims. This constitutes a failure of duty and a breach of the standard of care. The negligence standard under Section 206(2) allows the SEC to penalize firms for sloppy oversight without needing to prove a deliberate conspiracy to deceive the market.

Remedial Actions and the Cease and Desist Directive

The SEC order mandated specific remedial actions to address the statutory violations. The regulator issued a formal censure against WisdomTree. A censure serves as a public reprimand and remains on the firm permanent regulatory record. The SEC also issued a cease and desist order. This directive legally compels the firm to stop committing or causing any current violations and prohibits any future violations of the listed statutes.

WisdomTree consented to the entry of the SEC order without admitting or denying the findings. This settlement structure represents a standard practice in SEC administrative proceedings. The firm agreed to pay the $4 million civil money penalty within 10 days of the October 21, 2024 order. The SEC directed the funds to the United States Treasury. The firm liquidated the three ESG funds in February 2024, removing the non compliant products from the market entirely. The enforcement action demonstrates the SEC strict application of the Advisers Act to ESG marketing claims. The regulator demands that firms align their internal compliance systems with their external marketing materials.

The Securities and Exchange Commission executed a formal enforcement action against WisdomTree Asset Management Inc. on October 21, 2024. The federal regulator determined the firm willfully violated Section 34(b) of the Investment Company Act of 1940. This specific statute makes it unlawful for any person to make an untrue statement of material fact in any registration statement filed with the agency. The enforcement division identified false statements within the prospectuses of three exchange traded funds. The funds operated under the ESG marketing banner. WisdomTree filed these misleading documents between March 2020 and November 2022.

The agency ordered the firm to pay a $4, 000, 000 civil money penalty. The regulator directed the funds to the United States Treasury general fund. The settlement required payment within ten days of the order. The firm consented to a cease and desist order and a formal censure without admitting or denying the findings. The board of trustees approved the liquidation of the three funds on February 5, 2024.

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Section 34(b) establishes a strict liability standard for material misstatements in registration documents. The Securities and Exchange Commission does not need to prove scienter to establish a violation. Scienter represents the legal concept of intent or knowledge of wrongdoing. The regulatory framework prioritizes the accuracy of public filings over the internal intent of the investment adviser. The enforcement action demonstrated that negligence or widespread failures in data screening qualify as statutory breaches when they result in false prospectus claims.

WisdomTree published prospectuses stating the funds excluded companies involved in fossil fuels and tobacco regardless of revenue measures. The firm relied on third party data vendors to screen investments. The data sets contained limitations. The screening process failed to exclude all companies involved in natural gas extraction, coal transportation, and retail tobacco sales. The firm filed these inaccurate prospectuses continuously for 32 months. The continuous filing of unverified claims constituted the core Section 34(b) violation.

The firm recognized the data limitations by September 2020. Internal reports showed the investment process failed to remove all fossil fuel securities. The firm did not inform the board of trustees or revise the prospectuses until November 2022. The delay in correcting the public record compounded the statutory breach. The regulator emphasized that investment advisers bear the absolute responsibility for the accuracy of their SEC filings. The reliance on external data vendors does not shield a firm from Section 34(b) liability.

The $4, 000, 000 civil penalty reflects the severity of the statutory breaches. The regulator mandated the payment transfer to the Enterprise Services Center Accounts Receivable Branch in Oklahoma City. The order specified that the penalty amounts are treated as penalties paid to the government for all tax purposes. WisdomTree expects insurance to cover legal and related expenses minus a $1, 000, 000 deductible. The insurance coverage does not apply to the $4, 000, 000 penalty itself.

Statutory Violations and Penalty Distribution Chart

The enforcement action against WisdomTree establishes a clear precedent for investment advisers marketing environmental and social governance funds. The Securities and Exchange Commission enforces Section 34(b) strictly against firms that fail to verify their prospectus claims. The $4, 000, 000 penalty serves as a direct financial consequence for filing unverified registration statements. The liquidation of the three funds demonstrates the final operational result of the compliance failure.

The Investment Company Act of 1940 governs the organization and activities of companies engaged primarily in investing and trading securities. Section 34(b) specifically the destruction of market integrity through false filings. The statute reads that it shall be unlawful for any person to make any untrue statement of a material fact in any registration statement. The law also prohibits the omission of facts necessary to prevent the statements made from being materially misleading. The Securities and Exchange Commission applied this exact statutory language to the WisdomTree enforcement action. The regulator found the firm omitted the reality of their data vendor limitations from the public filings.

The enforcement division documented that WisdomTree presented false information to the board of trustees. The firm represented to the board that the funds excluded companies involved in controversial products. The board relied on these representations when approving the fund operations and disclosures. The firm failed to inform the board when internal reports revealed the screening failures in September 2020. The board remained uninformed about the fossil fuel and tobacco exposure until November 2022. The Securities and Exchange Commission this communication failure as a core component of the statutory breaches.

The regulatory framework requires investment advisers to adopt written policies and procedures. The Securities and Exchange Commission found WisdomTree operated without specific policies governing the environmental and social governance screening process. The absence of written procedures allowed the data vendor limitations to without internal correction. The firm failed to purchase supplemental data to fix the screening gaps. The enforcement order detailed that the firm knew the primary vendor data captured only a subset of the prohibited companies. The firm chose not to implement a secondary verification system.

The $4, 000, 000 penalty calculation incorporates the duration of the violation and the total assets under management. The three funds held a monthly average of $119, 000, 000 during the violation period. The regulator assessed the penalty under Section 9(f) of the Investment Company Act and Sections 203(e) and 203(k) of the Advisers Act. The firm must pay the penalty via electronic transfer or certified check to the Enterprise Services Center. The strict payment ensure immediate transfer to the United States Treasury. The order explicitly denies any tax deductions for the penalty amount.

The liquidation of the WisdomTree Emerging Markets ESG Fund, the WisdomTree International ESG Fund, and the WisdomTree U. S. ESG Fund concluded the operational lifespan of the products. The board of trustees approved the liquidation on February 5, 2024. The firm closed the funds eight months before the Securities and Exchange Commission announced the formal settlement. The closure of the funds prevented further Section 34(b) violations related to these specific prospectuses. The enforcement action remains a permanent public record of the statutory breaches.

The Enforcement Division Asset Management Unit. Salvatore Massa and Joshua Tannen Investigation

The Securities and Exchange Commission deployed a specialized team to investigate the environmental social and governance marketing claims of WisdomTree Asset Management Inc. Salvatore Massa and Joshua Tannen led the inquiry. Both investigators operate within the Enforcement Division Asset Management Unit. The unit focuses exclusively on misconduct within the investment advisory and asset management sectors. The investigation culminated in a 4 million dollar civil penalty announced on October 21 2024.

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The SEC established the Asset Management Unit in January 2010. Bruce Karpati served as the inaugural chief of the unit. The division was created to proactively combat fraud in the asset management industry. The unit uses complex data analysis to detect securities fraud. The division oversees a staff of attorneys, industry experts, and other professionals. The unit operates on a nationwide basis to bring expertise to bear on complex financial investigations. The WisdomTree investigation demonstrates the capacity of the unit to analyze large datasets and identify discrepancies in portfolio holdings. Massa and Tannen reviewed thousands of trading records to verify the presence of prohibited investments. The investigators matched the portfolio holdings against the stated investment criteria in the prospectus documents.

Lee A Greenwood, Andrew Dean, and Corey Schuster supervised the investigation. Andrew Dean previously served as Co Chief of the Asset Management Unit. He oversaw a staff of attorneys across 11 offices. Corey Schuster currently serves as Co Chief of the unit. Schuster supervises investigations concerning offering fraud, undisclosed conflicts, and performance advertising. The supervisory team reviewed the evidence collected by Massa and Tannen. The supervisors confirmed that the firm violated the antifraud provisions of the Investment Advisers Act of 1940. The team also verified violations of the Investment Company Act of 1940.

The enforcement action originated from a routine regulatory examination. Arjuman Sultana, Majid S Mahmood, Lev Miller, and Margaret Pottanat conducted the initial review. These four individuals operate within the SEC Division of Examinations. The examination team audits registered investment advisers to ensure compliance with federal securities laws. The team identified severe discrepancies between the WisdomTree marketing materials and the actual portfolio holdings. The examiners found direct investments in coal mining, natural gas extraction, and retail tobacco sales. The Division of Examinations documented the compliance failures and formally referred the matter to the Enforcement Division for a full investigation.

Russell Feldman and Daniel Loss provided direct assistance during the investigation. Both attorneys operate out of the Enforcement Division New York Regional Office. The New York Regional Office operates as the largest regional office of the SEC. The office enforces federal securities laws in New York and New Jersey. The attorneys provided litigation and investigative support to the Asset Management Unit. The collaboration between the specialized unit and the regional office ensures a detailed review of the evidence. The New York team assisted in drafting the final settlement order. The order detailed the specific compliance failures and the resulting financial penalties.

SEC Investigation Personnel Breakdown

The investigation led by Massa and Tannen identified specific statutory violations. WisdomTree consented to the entry of the SEC order finding violations of Section 206(4) of the Investment Advisers Act of 1940. The firm also violated the compliance rule. The investigators documented violations of Section 34(b) of the Investment Company Act of 1940. The firm failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act. The Asset Management Unit determined that the firm operated with an absence of any internal method to verify the third party vendor data. The vendor data failed to screen out companies involved in fossil fuel and tobacco related activities. The investigators proved that the firm relied entirely on the flawed vendor data without independent verification.

Sanjay Wadhwa served as the Acting Director of the SEC Division of Enforcement during the settlement announcement. He stated that federal securities laws enforce a straightforward proposition. Investment advisers must do what they say and say what they do. Wadhwa emphasized that funds must adhere to their stated investment criteria. Firms must appropriately disclose any limitations or exceptions to such criteria. The Asset Management Unit actively pursues cases involving misleading strategy disclosures and widespread compliance failures. The unit prioritizes enforcement actions where firms fail to implement policies that match their public representations. The WisdomTree settlement represents a definitive regulatory action against deceptive marketing in the asset management industry.

The Asset Management Unit operates as one of five specialized units within the Enforcement Division. The unit focuses on the protection of retail investors. The division brings cases based in fraud, market manipulation, and breaches of fiduciary duty. The investigation into WisdomTree aligns with the core mission of the unit. The unit non scienter violations that remain long term and persistent. The WisdomTree violations from March 2020 until November 2022. The Asset Management Unit ensures that investment advisers face accountability for misleading disclosures. The 4 million dollar penalty serves as a direct consequence of the investigative work conducted by Massa, Tannen, and the supervisory team.

The regulatory action against WisdomTree establishes a clear precedent for asset managers. The Asset Management Unit demonstrated the capacity to trace marketing claims down to the individual portfolio holdings. The collaboration between the examination staff and the enforcement division created a unified front against deceptive marketing. The 4 million dollar penalty forces the industry to reevaluate reliance on third party data vendors. The SEC continues to allocate resources to the Asset Management Unit to pursue similar violations across the financial sector. Firms operating in the environmental social and governance space face strict scrutiny from Salvatore Massa, Joshua Tannen, and the broader enforcement team.

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Administrative Proceeding and Enforcement Leadership

The Securities and Exchange Commission formalized its enforcement action against WisdomTree Asset Management, Inc. on October 21, 2024. The federal regulator filed the administrative proceeding under file number 3-22268. The Asset Management Unit of the Enforcement Division directed the investigation. Salvatore Massa and Joshua Tannen conducted the primary investigative work. Lee A. Greenwood, Andrew Dean, and Corey Schuster provided supervisory oversight for the division. The final order outlined specific statutory violations and imposed strict compliance parameters on the New York based investment adviser.

Statutory Violations Under the Advisers Act

The SEC determined that the firm violated multiple antifraud and compliance provisions of the Investment Advisers Act of 1940. Section 206(2) prohibits an investment adviser from engaging in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client. The regulatory findings showed that the firm failed to execute the exclusionary strategy advertised to investors.

The agency also identified violations of Section 206(4) and Rule 206(4)-8. These provisions prohibit an investment adviser to a pooled investment vehicle from making any untrue statement of a material fact. They also prohibit omitting a material fact necessary to make the statements not misleading. The firm provided inaccurate information to the board of trustees and the fund investors regarding the screening parameters.

Rule 206(4)-7 requires registered investment advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act. The SEC investigation revealed a complete absence of written policies and procedures governing the environmental and social screening process. The firm failed to implement internal controls that would ensure the selected investments complied with the exclusionary mandates advertised in the fund documents.

Investment Company Act Violations

The enforcement action included a violation of Section 34(b) of the Investment Company Act of 1940. This section makes it unlawful for any person to make any untrue statement of a material fact in any registration statement, application, report, or other document filed with the SEC. The firm filed prospectuses that explicitly guaranteed the exclusion of specific sectors. The actual portfolio holdings contradicted these filed registration statements.

Statutory Violations and Penalty Structure

The Cease and Desist Mandate and Censure

WisdomTree consented to the entry of the order without admitting or denying the findings. This settlement structure represents a standard SEC parameter. It prevents the regulatory findings from serving as direct admissions of liability in private civil litigation. The firm accepted a formal censure and paid a $4 million civil monetary penalty.

The SEC mandated that the firm cease and desist from committing or causing any current or future violations of the identified provisions. A cease and desist order carries severe legal weight. Any future violation of these specific statutes would trigger immediate and escalated punitive measures from the federal regulator. The firm must maintain strict adherence to all marketing claims and internal compliance rules.

Fund Liquidation and Remedial Actions

The SEC noted that the firm updated the prospectus disclosures in November 2022 to reflect the actual data limitations. This update ended the period of active misstatements. The firm subsequently liquidated the three funds on February 5, 2024. The board of trustees approved this liquidation prior to the final SEC settlement. The liquidation removed the noncompliant products from the market entirely. The SEC order did not mandate the appointment of an independent compliance consultant, nor did it establish a Fair Fund to distribute the penalty to investors. The $4 million penalty transfers directly to the United States Treasury.

The Mechanics of the Neither Admit Nor Deny Settlement

The SEC frequently uses the neither admit nor deny settlement framework to resolve enforcement actions. This legal structure allows the federal regulator to secure immediate compliance, impose financial penalties, and publish detailed findings without enduring years of litigation. For the penalized firm, this structure mitigates collateral damage. An outright admission of fraud would trigger immediate civil lawsuits from shareholders and possibly jeopardize the firm’s operational licenses. The firm accepts the financial penalty and the public censure while preserving its legal defenses against third party claims. The SEC maintains that the detailed factual findings in the public order serve as a sufficient deterrent to the broader financial industry.

Evaluating the Rule 206(4)-7 Compliance Failure

The violation of Rule 206(4)-7 represents a serious operational failure. The SEC requires investment advisers to build customized compliance programs that address their specific business risks. When a firm markets specialized environmental and social funds, the compliance program must include specific testing procedures for those claims. The SEC found that the firm relied entirely on third party data vendors without building an internal verification system. The firm operated without a dedicated procedure to audit the vendor data against the prospectus guarantees. This absence of oversight allowed the prohibited investments to enter the portfolios and remain unnoticed by the compliance department. The cease and desist order legally binds the firm to correct these internal control deficiencies across all remaining product lines.

The financial toll of the greenwashing violations extended far beyond the direct regulatory fines. The firm absorbed millions in legal fees, liquidated the noncompliant funds, and abandoned its targeted environmental strategy entirely. The total cost of the mislabeling surfaced in quarterly earnings reports, fund closure announcements, and insurance deductible disclosures. The regulatory action forced the firm to confront the financial reality of its compliance failures. The decision to close the funds rather than fix the screening process reveals the high cost of proper environmental data verification. The firm determined that the expense of purchasing accurate third party data and implementing strict compliance exceeded the chance advisory fees generated by the funds.

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The firm announced the closure of the three exchange traded funds on December 12, 2023. The international, emerging markets, and domestic funds ceased trading on January 26, 2024. The final net asset value calculation took place on February 2, 2024. The official liquidation executed on February 5, 2024. Shareholders who held their positions through the final trading day received automatic cash redemptions based on the final valuation. The closure erased the targeted environmental products from the firm portfolio. The liquidation process required the firm to sell off the underlying assets, including the controversial fossil fuel and tobacco holdings that triggered the federal investigation. The firm returned the cash to investors and dissolved the legal structures of the three funds.

Regulatory scrutiny generates heavy legal billing. The firm recorded 3. 7 million dollars in other revenues related to legal and associated expenses during the third quarter of 2024. These expenses stemmed directly from the federal investigation into the screening process. The firm expected insurance to cover the bulk of these costs. The policy required the firm to pay a 1 million dollar deductible out of pocket. The combination of the 4 million dollar civil penalty and the 1 million dollar deductible brought the direct cash impact of the compliance failure to 5 million dollars. The firm also incurred internal costs related to the investigation, including the time spent by executives and compliance officers responding to federal subpoenas and preparing settlement documents.

The liquidation coincided with a broader retreat from thematic environmental investing. The market experienced a sharp contraction in sustainable fund offerings throughout 2024. Europe domiciled thematic funds saw 1. 1 billion euros in net outflows during the year. The United States market mirrored this trend. The total number of focused sustainable funds declined as asset managers closed or reorganized their portfolios. By April 2024, the industry saw a net drop of 36 sustainable funds. The political pushback and strict regulatory enforcement made the maintenance of these products less viable. Asset managers faced increased scrutiny from both federal regulators and state officials. The cost of compliance rose sharply as regulators demanded verifiable proof of environmental claims.

The failure of the three specific funds did not derail the in total growth trajectory of the asset manager. The firm reported 109. 8 billion dollars in total assets under management by the end of 2024. The total reached 144. 5 billion dollars by the fourth quarter of 2025. The growth relied heavily on cryptocurrency products and domestic equities. The firm pivoted away from the scrutinized environmental sector and capitalized on the demand for digital assets. The physical bitcoin product alone surpassed 1 billion dollars in assets and led the European market in net new flows. The firm also expanded its core products and launched new digital funds. The success of these alternative products masked the financial losses associated with the greenwashing settlement.

The financial losses from the mislabeling event remain to the specific product line and the regulatory penalties. The firm maintained an average advisory fee of 0. 36 percent throughout the regulatory investigation. The operating revenues increased even with the fund closures. The true cost of the greenwashing violation manifests as a permanent exit from a specific investment theme. The firm chose liquidation over remediation. The cost of purchasing supplemental data and rebuilding the compliance framework outweighed the chance revenue from the 119 million dollar asset pool. The firm calculated that the reputational damage and regulatory risk of maintaining the funds exceeded their financial value. The settlement serves as a financial warning to other asset managers about the strict enforcement of environmental marketing claims.

The quarterly earnings reports from late 2023 through 2025 detail the financial progression of the firm during the regulatory investigation. The firm reported 19. 1 million dollars in net income for the fourth quarter of 2023, just as it announced the fund liquidations. By the quarter of 2024, net income rose to 22. 1 million dollars. The third quarter of 2024 included the 3. 7 million dollar legal expense charge. The fourth quarter of 2024 saw net income reach 27. 3 million dollars. The firm achieved 147. 4 million dollars in revenue by the fourth quarter of 2025. The steady increase in revenue and net income shows that the firm absorbed the 5 million dollar direct cash impact without disrupting its broader financial stability. The firm used its massive asset base to absorb the penalty and move forward with its digital asset strategy.

Direct Financial Costs of the ESG Settlement

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The Securities and Exchange Commission order from October 21, 2024 details exactly how the sector classification system failed. WisdomTree contracted Vendor B to provide an additional of exclusionary research. The firm intended to use this data to remove fossil fuel companies from three exchange traded funds. Vendor B classified companies strictly by their primary business sector. The vendor published this methodology publicly on its website. WisdomTree applied the exclusionary filter exclusively to the Energy Sector. This decision created a large blind spot across the entire portfolio.

WisdomTree incorporated data from Vendor B shortly before the inception of the ESG funds in March 2020. The firm added this second vendor after realizing that Vendor A failed to capture certain companies involved in fossil fuels. Vendor A offered separate data sets for Arctic oil and gas exploration, thermal coal, and oil sands. WisdomTree did not subscribe to the Vendor A data sets covering shale energy, oil, and gas. To cover this gap, the firm turned to Vendor B. Vendor B operated as another ratings, research, and analytics firm. Vendor B classified companies by their primary business sector. Information concerning the Vendor B data and its limitations was publicly available on the vendor website. WisdomTree only used the Vendor B Energy Sector data to exclude securities. The firm ignored the fact that other Vendor B industry sector classifications included companies heavily involved in fossil fuels. This decision directly caused the portfolio contamination.

The Utilities Sector became a primary hiding place for fossil fuel investments. Vendor B placed utility companies that distributed natural gas to residential and industrial customers into the Utilities Sector. Because WisdomTree only screened the Energy Sector, these natural gas distributors bypassed the environmental filters entirely. The Securities and Exchange Commission found that the WisdomTree International ESG Fund held a major natural gas distributor with interests in shale gas extraction from March 2020 to December 2023. The WisdomTree Emerging Markets ESG Fund held a company owning natural gas distributors and infrastructure from March 2020 to February 2024. The same emerging markets fund held a pure natural gas distributor from March 2020 to March 2021. The WisdomTree U. S. ESG Fund held multiple utility holding companies owning natural gas distribution utilities. The U. S. fund also held a utility company with shale gas extraction operations from June 2022 to March 2023.

The Industrials Sector provided another avenue for fossil fuel companies to enter the funds. Vendor B classified transportation and logistics companies under Industrials. This classification allowed a freight company with substantial coal transport operations to remain in the WisdomTree International ESG Fund from March 2020 to December 2021. The WisdomTree U. S. ESG Fund held a freight railroad transporting coal, fracking sand, and crude oil. The firm failed to apply any fossil fuel screens to the Industrials Sector. The vendor methodology strictly separated extraction companies from transportation companies. This separation meant that companies moving fossil fuels across the country received an industrial label instead of an energy label. WisdomTree accepted these classifications without applying secondary screens to the transportation assets.

The Materials Sector exposed a third failure point in the screening method. Vendor B placed chemical manufacturers and metal producers in this category. The WisdomTree International ESG Fund held a specialty chemical company providing chemicals for offshore and onshore drilling. The fund held this company from June 2021 to September 2021 and again from June 2022 to February 2024. The WisdomTree U. S. ESG Fund held a steelmaker with a 49 percent stake in oil and gas reserves. The WisdomTree Emerging Markets ESG Fund acquired a firm holding a 25 percent stake in an oil refining and distribution company. The fund held this asset from December 2020 to September 2021. The primary business sector of the parent company masked the large oil refining operation from the Vendor B energy screen. The firm did not screen the Materials Sector for fossil fuel involvement.

The Securities and Exchange Commission documented that WisdomTree knew about these specific data limitations. The firm prepared internal ESG Characteristics Reports in September 2020. These reports used data from an investment research firm that owned Vendor A. The reports explicitly identified that the three ESG funds held positions in companies involved in fossil fuel activities. The firm possessed documented proof that the sector classification method failed to exclude natural gas distributors, coal transporters, and drilling chemical suppliers. The firm took no immediate action to correct the screening process. The firm did not notify the board of directors about the fossil fuel exposure. The firm continued to market the funds as fossil fuel free. The firm waited until November 2022 to revise the fund prospectuses. The firm liquidated all three funds on February 5, 2024.

20 Investigative Questions Answered

The Hidden Oil and Gas Exposure in the U. S. ESG Fund

The Securities and Exchange Commission published a detailed cease and desist order on October 21, 2024. The federal regulator documented multiple instances where WisdomTree Asset Management Inc. violated its own exclusionary criteria for the WisdomTree U. S. ESG Fund. The fund traded under the ticker symbol RESP. The prospectus explicitly stated the fund excluded companies involved in fossil fuels. Yet the portfolio contained a major steelmaker that held a 49 percent stake in a company maintaining properties with oil and gas reserves.

The inclusion of this steelmaker directly contradicted the marketing materials provided to investors and the board of trustees. Investors allocated capital to the RESP fund under the assumption that their money avoided fossil fuel exposure. The SEC investigation revealed that the fund acquired the steelmaker in June 2021. The fund held this position continuously until WisdomTree liquidated the entire ETF on February 5, 2024.

Data Vendor Failures and the 49 Percent Stake

WisdomTree relied on third party data providers to screen prospective investments. The firm contracted Vendor A to supply data sets identifying companies involved in controversial activities. Vendor A offered specific lists for Arctic oil and gas exploration, thermal coal, and oil sands. WisdomTree failed to purchase the supplemental data sets covering shale energy and broader oil and gas operations. This omission created a massive blind spot in the screening method.

To correct the data gaps, WisdomTree hired Vendor B. Vendor B classified companies by their primary business sector. Because the company in question operated primarily as a steelmaker, Vendor B categorized it under the steel industry. The screening tool did not look deeper into the corporate structure to identify the 49 percent ownership stake in the oil and gas reserve properties. The steelmaker bypassed both Vendor A and Vendor B screens.

The SEC noted that WisdomTree operated with an absence of written policies and procedures to verify the third party data. The firm accepted the vendor classifications without conducting independent fundamental analysis on the holdings. This reliance on flawed external data allowed the steelmaker to remain in the supposedly green portfolio for nearly three years.

Timeline of the Steelmaker Holding

The timeline of this specific holding demonstrates the duration of the compliance failure. The table outlines the exact dates and actions regarding the steelmaker in the WisdomTree U. S. ESG Fund.

The firm updated its prospectus in November 2022 after the SEC Division of Examinations initiated an inquiry. The revised documents changed the definition of fossil fuels to include only Arctic oil gas, oil sands, and thermal coal. The firm no longer claimed to screen out all companies involved with fossil fuels regardless of revenue measures. Even with this update, the SEC determined the initial investments from June 2021 through November 2022 constituted a serious regulatory breach.

Regulatory Enforcement and the 4 Million Dollar Penalty

The SEC Asset Management Unit conducted the investigation into the ESG funds. The regulators found that WisdomTree violated the antifraud provisions of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The agency also documented violations of the compliance rule in the Investment Advisers Act. The firm agreed to a cease and desist order, a censure, and a 4 million dollar civil penalty. WisdomTree consented to the entry of the SEC order without admitting or denying the findings.

Sanjay Wadhwa served as the Acting Director of the SEC Division of Enforcement during the settlement. He emphasized the fundamental requirements of federal securities laws regarding investment advisers.

“At a fundamental level, the federal securities laws enforce a straightforward proposition: investment advisers must do what they say and say what they do. By contrast, the funds at problem in today’s enforcement action made precisely the types of investments that investors would not have expected them to based on WisdomTree’s disclosures.”

This statement from the SEC highlights the core matter of the enforcement action. The inclusion of the steelmaker with oil and gas reserves directly violated the trust of the investors. The investors paid management fees for a specialized ESG product. They received a portfolio containing hidden fossil fuel assets.

The Broader Consequences of Indirect Fossil Fuel Exposure

The case of the steelmaker illustrates the complexities of corporate ownership structures in ESG investing. A company categorized in the materials or industrial sector can hold significant assets in the energy sector. The 49 percent stake in oil and gas reserves provided the steelmaker with direct financial exposure to fossil fuel extraction and production. When the RESP fund purchased the steelmaker stock, the fund indirectly financed those oil and gas reserves.

The SEC order shows that regulators expect investment advisers to look beyond primary sector classifications. If a fund guarantees to exclude fossil fuels, the adviser must ensure the screening method captures subsidiaries, joint ventures, and significant minority in fossil fuel properties. The failure to purchase the correct data sets from Vendor A and the reliance on primary sector codes from Vendor B created the exact scenario the prospectus guaranteed to avoid.

WisdomTree liquidated the U. S. ESG Fund on February 5, 2024. The liquidation ended the holding period for the steelmaker. The SEC enforcement action serves as a definitive record of the compliance failures that occurred between March 2020 and November 2022. The 4 million dollar penalty quantifies the regulatory cost of these misstatements.

The Securities and Exchange Commission penalized WisdomTree Asset Management $4 million in October 2024 for misleading investors. The firm marketed three exchange traded funds as excluding fossil fuel and tobacco companies. The agency discovered these funds held assets in coal mining, natural gas extraction, and retail tobacco sales. WisdomTree relied on third party data vendors and failed to purchase supplemental data to identify violators. The firm agreed to a cease and desist order without admitting or denying the findings.

Investigative Fan Out. 20 Questions on SEC Enforcement

1. What penalty did WisdomTree pay? WisdomTree paid a $4 million civil penalty.
2. When did the SEC fine WisdomTree? The agency announced the fine in October 2024.
3. Which funds were involved? The action involved three exchange traded funds.
4. What sectors did the funds improperly buy? The funds bought coal mining, natural gas, and tobacco stocks.
5. Did WisdomTree admit guilt? The firm consented to the order without admitting or denying the findings.
6. What penalty did Invesco pay? Invesco paid a $17. 5 million penalty in November 2024.
7. Why did the SEC fine Invesco? The firm made misleading statements regarding the percentage of assets integrating environmental and social factors.
8. How much did DWS pay? DWS paid a $19 million penalty in September 2023.
9. What was the DWS violation? The firm failed to implement its stated policies.
10. What penalty did Goldman Sachs Asset Management face? The firm paid a $4 million penalty in November 2022.
11. Why did the SEC penalize Goldman Sachs? The firm failed to follow its own written policies consistently.
12. How much did BNY Mellon pay? BNY Mellon paid a $1. 5 million penalty.
13. What was the BNY Mellon violation? The firm misstated policies for certain mutual funds.
14. When did the SEC close its dedicated task force? The agency shuttered the unit in September 2024.
15. How staff members did the task force have? The unit began with 22 staff members.
16. the SEC stop enforcing these rules? The agency stated it use standard tools to hold violators accountable.
17. What data did WisdomTree use? The firm relied on third party vendors.
18. Did the vendor data screen out all fossil fuel companies? The data failed to exclude all companies involved in fossil fuel extraction.
19. Did WisdomTree have internal screening policies? The SEC found the firm had an absence of policies regarding the screening process.
20. What is the total combined fine for these five firms? The combined penalties total $46 million.

The WisdomTree penalty aligns with a broader regulatory crackdown on asset managers. The agency fined Invesco Advisers $17. 5 million in November 2024 for misleading clients about the percentage of assets managed under specific sustainability guidelines. DWS Investment Management Americas paid a $19 million penalty in September 2023 for similar compliance failures. Goldman Sachs Asset Management paid $4 million in November 2022 after investigators found the firm failed to follow its own written research policies. BNY Mellon Investment Adviser paid $1. 5 million earlier that year for misstating policies on mutual funds.

The agency shuttered its dedicated 22 member task force in September 2024. Regulators stated the unit completed its primary objective of addressing greenwashing risks. The expertise developed by the unit resides across the broader enforcement division. Officials confirmed they continue to use standard enforcement tools to hold violators accountable for misleading claims. The subsequent penalties against WisdomTree and Invesco prove the agency maintains direct oversight over asset managers.

20 Investigative Questions Answered

1. When did the SEC announce the WisdomTree settlement? The agency announced the settlement on October 21, 2024.
2. What was the civil penalty amount? The regulator assessed a $4 million civil penalty.
3. Did WisdomTree admit to the SEC findings? The firm consented to the order without admitting or denying the findings.
4. When did the three ESG funds stop trading? The funds ceased trading on January 26, 2024.
5. What happened to investors who did not sell by the final trading day? These investors received automatic cash redemptions.
6. When were the automatic cash redemptions distributed? The firm distributed the cash on or about February 5, 2024.
7. What metric determined the cash redemption value? The net asset value calculated on February 2, 2024 determined the payout.
8. Did WisdomTree expect to pay the full legal costs out of pocket? The firm stated that insurance policies covered the majority of the expenses.
9. How much was the insurance deductible for the legal expenses? The firm paid a $1.0 million deductible.
10. What was WisdomTree total revenue in 2025? The company reported $493.75 million in revenue for 2025.
11. What was the firm stock ticker symbol? The company trades under the ticker WT.
12. What exchange lists WisdomTree stock? The New York Stock Exchange lists the shares.
13. What was the firm approximate market capitalization in early 2026? The market capitalization reached $2.3 billion.
14. Who is the largest shareholder of WisdomTree? ETFS Capital holds the largest position.
15. What percentage of outstanding shares did ETFS Capital hold? The firm held 10.2 percent of outstanding shares.
16. What reason did ETFS Capital give when seeking board changes? The shareholder pointed to dismal performance.
17. When did the SEC disband its Climate and ESG Task Force? The agency disbanded the unit in September 2024.
18. Did the task force closure stop the WisdomTree enforcement? The October 2024 penalty proved that enforcement continued.
19. What specific regulatory act provisions did the SEC reference? The agency referenced the Investment Advisers Act of 1940 and the Investment Company Act of 1940.
20. What did the SEC release alongside the financial penalty? The regulator delivered a cease and desist order and a censure.

The Liquidation Timeline and Investor Cash Redemptions

WisdomTree closed the three exchange traded funds months before the Securities and Exchange Commission announced the final settlement. The firm published a press release on December 12, 2023 detailing the liquidation schedule. The funds stopped accepting creation orders and ceased trading on the Cboe BZX Exchange and NYSE Arca after the market close on January 26, 2024.

Investors had the option to sell their shares on the open market prior to the deadline. Shareholders who held their positions past January 26, 2024 experienced an automatic redemption process. The firm converted the portfolio assets to cash. Brokers and financial intermediaries distributed the cash to shareholders on or about February 5, 2024. The final payout relied on the net asset value calculated on February 2, 2024. WisdomTree absorbed the ordinary operating fees during the wind down period. The funds themselves paid the brokerage fees and taxes associated with liquidating the portfolio investments.

The liquidation process created possible tax consequences for shareholders. Selling shares prior to liquidation subjected investors to capital gains or losses based on their adjusted basis. For those who held until the automatic redemption, the conversion of portfolio assets to cash also triggered taxable events. The funds deviated from their stated investment objectives during the wind down period as they increased cash holdings.

Insurance Coverage and the $4 Million Penalty

The Securities and Exchange Commission released the formal order on October 21, 2024. The regulator mandated a $4 million civil money penalty. WisdomTree consented to the cease and desist order and the censure without admitting or denying the findings. The firm filed a Form 8 K with the SEC to disclose the financial impact of the regulatory action.

The filing revealed that WisdomTree did not bear the full brunt of the legal costs. The company stated that it expected insurance to cover all legal and related expenses incurred in connection with the matter. The insurance policy included a $1.0 million deductible. The firm paid the deductible and the $4 million penalty. The SEC directed the penalty funds to the United States Treasury.

The SEC order required WisdomTree to implement permanent compliance changes. The firm had to establish new policies and procedures over the screening process to exclude prohibited companies. The regulator verified that WisdomTree updated the prospectus disclosures by November 2022 to accurately reflect the data models used for the funds.

Market Reaction and 2025 Financial Performance

The $4 million penalty did not destroy the financial standing of the asset manager. WisdomTree stock trades on the New York Stock Exchange under the ticker WT. The share price remained stable following the October 2024 announcement. By early 2026 the stock traded near $16.62 per share. The company achieved a market capitalization of $2.3 billion.

Financial reports from 2025 document significant revenue growth. WisdomTree generated $493.75 million in revenue during 2025. This figure represented a 15.43 percent increase compared to the $427.74 million reported in the previous year. Earnings for 2025 reached $108.39 million. The firm expanded its assets under management to $144.5 billion by the end of 2025. The market reaction proves that investors viewed the SEC penalty as a manageable operational expense rather than a fatal blow to the enterprise.

Shareholder Pressure and Board Disputes

Even with the revenue growth the firm faced internal pressure from major investors. ETFS Capital operates as a United Kingdom based investing firm and stands as the largest shareholder of WisdomTree. The firm held 10.2 percent of the outstanding shares. This ownership stake climbed to 18.3 percent when factoring in series A preferred stock.

ETFS Capital owned a slate of exchange traded fund industry related companies. Their push for board representation showed a growing divide regarding the strategic direction of WisdomTree. The greenwashing penalty added friction to this relationship. ETFS Capital publicly criticized the asset manager prior to the SEC settlement. The shareholder pointed to dismal performance and sought to add its own candidates to the WisdomTree board of directors. The regulatory investigation provided additional ammunition for shareholders demanding tighter compliance controls and better corporate governance. The activist investor campaign forced WisdomTree executives to defend their compliance frameworks and operational decisions.

Regulatory Posture Post Task Force

The Securities and Exchange Commission established the Climate and ESG Task Force to actively identify misconduct in green investment marketing. The agency disbanded this specific unit in September 2024. Market participants assumed the dissolution meant a relaxation of environmental compliance enforcement.

The WisdomTree settlement arrived one month later in October 2024. The $4 million penalty proved that the SEC continued to prosecute greenwashing claims using standard anti fraud provisions. The agency referenced violations of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The regulator demonstrated that it did not need a specialized task force to penalize firms for prospectus contradictions.

The SEC Enforcement Division absorbed the responsibilities and continued to monitor prospectus disclosures. The regulator made it clear that investment advisers must align their portfolio actions with their marketing materials. The enforcement action against WisdomTree served as a direct warning to other asset managers operating in the environmental, social, and governance space. The subsequent November 2024 penalty against Invesco Advisers confirmed this aggressive enforcement posture.

Verified Liquidation and Financial Metrics