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When reports started circulating in January that the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations was sending inquiries to asset management firms that offer environmental, social and governance (ESG) investment products, that came as no surprise to those familiar with regulatory reactions to investment trends.

The SEC has a long history of bringing enforcement actions against asset managers alleging a mismatch between what investors are told their funds are invested in and what investors’ funds are actually invested in. For example, if your fund’s prospectus says that it will employ a covered-call strategy but the fund instead employs individual naked index puts or short variance swap positions, the SEC may take issue.

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