WisdomTree has received a Wells Notice from the SEC regarding ESG ETFs

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WisdomTree Asset Management has received a Wells Notice from the SEC for an enforcement action related to three ETFs focused on ESG criteria.

On August 5, the company filed a Form 8-K with the Securities And Exchange Commission, notifying that WisdomTree Asset Management, Inc. (WTAM) received a “Wells Notice” from the SEC staff.

WTAM is a wholly owned subsidiary of WisdomTree. 

The Wells Note from the SEC for WisdomTree

Specifically, this Wells Note received from WTAM informed that the SEC staff had made a “preliminary determination” to recommend that the agency initiate an enforcement action against the company alleging violations of certain provisions of U.S. federal securities laws. 

Such notification may result in a subsequent civil injunctive action, or another legal action, which could lead to injunctions, restitutions, interests, civil monetary penalties, or other.

It should be noted, however, that a Wells Notice is not a formal accusation of wrongdoing, nor a definitive determination that the recipient has violated a law. In fact, WTAM currently actually maintains that its actions have been in compliance with all applicable laws and regulations. 

The Form 8-K filed by WisdomTree reveals that the alleged violations contested by the SEC concern three ETFs of WisdomTree Trust, managed by WTAM, which pursue investment strategies focused on ESG Funds.

ESG Funds are investment products that should contain only securities with a high sustainability score. 

Funds of this type are becoming increasingly popular among investors sensitive to these themes, so they are relatively widespread. 

The funds of WisdomTree

The three ESG funds of WisdomTree are WisdomTree International ESG Fund (RESD), WisdomTree Emerging Markets ESG Fund (RESE), and WisdomTree US ESG Fund (RESP).

The Board of Directors of WisdomTree Trust, after a careful evaluation of various factors, including the persistent lack of demand from investors and the limited prospects for future asset growth, in December 2023 approved the liquidation of the ESG Funds. 

All of his ESG Funds completed their liquidation in February of this year. 

During their periods of operation, WisdomTree’s ESG funds had a total average assets under management (AUM) of approximately 119 million dollars.

For example, the sole ETF WisdomTree Physical Bitcoin, listed on the London Stock Exchange, currently has an AUM of 540 million dollars, while the new ETF WisdomTree Bitcoin Fund, listed in the USA, has already reached 206 million dollars in seven months.

Therefore, the success of the ESG Funds of WisdomTree has been so limited that the company has decided to close them. 

WisdomTree in total manages 79 ETF, with a total AUM of over 76 billion dollars. 

WisdomTree 

WisdomTree is a company specialized in the issuance and management of ETF and ETP, and it is one of the largest companies in the world in this specific sector. 

It was founded in New York in 1985 by Jonathan Steinberg, and it is listed on the stock exchange with the ticker WT.

The price of WT shares on the stock market had actually already started to decline a few days before the release of this news. 

It should not be forgotten, however, that on the first of August it had reached its all-time high above 12$.

After the excellent performance of 2021, which brought the stock from around $5 pre-pandemic to over $7, during the subsequent bear-market it returned to $5. 

However, starting from the end of February this year, the price has started to rise significantly, so much so that it is currently 44% higher than at the beginning of the year. 

This rise has been almost constant until the beginning of August, although a significant portion was concentrated in the second half of July. 

In fact, the current price just below $10 is precisely in line with that of early July, because after reaching new all-time highs, it has practically lost everything it had recently gained. 

On the single day of August 5th, it lost 7%, also because the news mentioned above was compounded by the decline that had already begun at the beginning of the month.