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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.
So it stands to reason that if investment managers are touting ESG investments, the SEC will take an interest in verifying the accuracy of those representations.
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Nicolas Morgan
Nicolas Morgan is a partner at the global defense firm Paul Hastings and the founder and President of ICAN (Investor Choice Advocates Network). He focuses his practice on complex securities litigation in state and federal courts and representations involving government investigations and white-collar crime allegations levied against individuals and businesses. He routinely represents securities issuers, company officers and directors, investment funds, analysts and brokers in connection with SEC and FINRA investigations, litigation and arbitration. He also counsels public companies, funds and broker-dealers on securities compliance and corporate governance, conducts internal investigations and assists in regulatory examinations initiated by the SEC’s Division of Corporate Finance and Office of Compliance Inspections and Examinations.
