The Securities and Exchange Commission (SEC) has fined BNY Mellon Investment Adviser $1.5 million for making "misstatements and omissions" on environmental, social, and governance (ESG) mutual funds it managed over three years.
According to the SEC, BNY Mellon informed investors via mutual fund prospectuses and written responses to RFPs that the mutual funds it managed had undergone "proprietary ESG quality reviews" as part of the investment research process. While such reviews were carried out for some of the managed mutual funds in question, they were not carried out for all of them, according to the agency.
BNY Mellon allegedly misled investors by claiming that overlay funds in managed mutual funds had received ESG quality reviews when they had not.
According to the SEC, numerous equity and/or corporate bond investments held by certain BNY Mellon overlay funds did not have an ESG quality review score at the time of investment, as promised in the prospectus, between July 2018 and September 2021. 67 of 185 investments in one overlay fund did not have an ESG quality review score from January 2019 to March 2021, accounting for nearly 25% of the fund's net assets as of March 31, 2021.
The SEC's order stated that BNY Mellon's representations “were incomplete because they did not also state that the sub-adviser could and did select portfolio investments that were not necessarily subject to that aspect of the research process."
BNY Mellon agreed to pay the fine, be censured, and refrain from future securities law violations without admitting or denying the SEC's findings.
Sanjay Wadhwa, deputy director of the SEC's Division of Enforcement and head of the Climate and ESG Task Force, said in a press release Monday that "registered investment advisers and funds are increasingly offering and evaluating investments that employ ESG strategies or incorporate certain ESG criteria, in part to meet investor demand for such strategies and investments. "
BNY Mellon failed to adopt and implement policies and procedures reasonably designed to prevent the inclusion of untrue statements of fact in prospectuses or the inclusion of misleading statements in [request for proposal] responses or to the overlay funds' boards, according to the SEC's order.
According to the order, the company cooperated with the SEC's investigation by providing detailed factual summaries and substantive presentations on key topics. According to the order, BNY Mellon also revised disclosure language and made changes to relevant processes, policies, and procedures.
"While none of these funds were part of the BNYMIA ‘Sustainable’ fund range, we take our regulatory and compliance responsibilities seriously and have updated our materials as part of our commitment to ensuring our communications to investors are precise and complete," BNY Mellon responded in an emailed statement. "We are proud of our heritage and track record in responsible investment and are committed to continuing to be a trusted partner for our clients’ responsible investing needs."
By fLEXI tEAM