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Well, there it is. Yesterday, the SEC fined DWS Investment Management Americas, Inc. (DIMA) – the American arm of German investment bank DWS Group GmbH – $19 million for “material misstatements, and its failure to adopt and implement policies and procedures reasonably designed to prevent the resulting violations of the Advisers Act and the rules thereunder concerning DIMA’s integration of Environmental, Social, and Governance (‘ESG’) factors in research and investment recommendations for certain actively managed ESG integrated mutual funds and separately managed account strategies advised by DIMA.” 

According to the Order, DIMA willfully violated:

“Section 206(2) of the Advisers Act, which prohibits an investment adviser, directly or indirectly, from engaging ‘in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client.’…

Section 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, which provides in relevant part that it is unlawful for an investment adviser to a pooled investment vehicle to make any untrue statement of a material fact or to omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, to any investor or prospective investor in the pooled investment vehicle…

Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require investment advisers registered or required to be registered with the Commission to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder.”

This is interesting in several ways. First, it cements the point that the Commission is serious about ESG enforcement.This is clear not only in that enforcement action was taken, but also because of the size of the penalty. I mean – yikes! Also, the timing of this announcement coincides with the release of the Names Rule amendments last week. Funds and advisors marketing their ESG strategies and chops better take notice. We’re probably going to see big changes in the investment world very soon – perhaps the quickest will be a big reduction in funds/advisors touting themselves as integrating ESG into investment considerations.

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Photo credit: Bloomberg

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile