SEC Settles Charges with Investment Adviser in Connection with ESG Misstatements and Omissions

May 25, 2022

On May 23, 2022, the SEC announced that it settled charges against an investment adviser (Adviser) in connection with misstatements and omissions about environmental, social, and governance (ESG) considerations in making investment decisions for certain mutual funds that it managed (Funds). Without admitting or denying SEC findings, the Adviser agreed to the payment of a penalty of $1.5 million as part of its settlement. The announcement is the first time that the SEC has publicly tied a settled order directly to the work of its ESG Task Force (ESG Task Force). The ESG Task Force was formed in March 2021 and, among other things, analyzes disclosure and compliance issues relating to ESG strategies of investment advisers and funds.

According to the SEC order, from July 2018 to September 2021, the Adviser represented or implied in the prospectuses of the Funds and various other statements that ESG quality reviews had been conducted for all investments made by the Funds. The SEC order indicates that, despite such representations, the Funds made numerous investments that had not undergone an ESG quality review as part of their disclosed investment selection process as of the time of investment, thereby violating antifraud and other provisions of the federal securities laws.

This matter is indicative of the SEC’s recent focus on ESG matters. Consistent with this focus, the SEC will consider proposed rule amendments to address ESG disclosures for investment advisers and investment companies at an open meeting scheduled for May 25, 2022.

The SEC press release can be found here.
The SEC order can be found here.
Information on the SEC’s ESG Task Force can be found here.
The SEC’s upcoming events can be found here.


Categories

Compliance, Enforcement Actions, Investment Advisers, Investment Companies, Miscellaneous, Mutual Funds, Regulatory