Investment Adviser Settles SEC Charges for ESG Misstatements and Omissions

An investment adviser subsidiary of a New York-based custodian bank settled SEC charges for failing to (i) complete an Environmental, Social and Governance ("ESG") quality review of all investments and (ii) disclose that no review had been completed.

In its Order, the SEC determined that the adviser gave investors mutual fund prospectuses that falsely stated that the adviser implemented ESG principles while conducting an ESG quality review as part of its investment research process. In addition, the SEC found that the adviser solicited potential investors using offering documents that falsely stated that the adviser completed ESG-compliant quality reviews of all investments.

As a result, the SEC found that the adviser violated Sections 206(2) and 206(4) ("Prohibited transactions by investment advisers") of the Investment Advisers Act, Investment Advisers Act Rule 206(4)-7 ("Compliance procedures and practices") and Rule 206(4)-8 ("Pooled investment vehicles") and Section 34(b) ("Unlawful representations and names") of the Investment Company Act.

To settle the charges, the adviser agreed to (i) a cease-and-desist order, (ii) a censure and (iii) pay a $1,500,000 civil penalty.