MutualFundWire.com: A $2.6B-AUM AM Settles, Accused of Failing Its Own Religious Standards

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Tuesday, October 1, 2024

A $2.6B-AUM AM Settles, Accused of Failing Its Own Religious Standards

U.S. regulators are going after a $2.562-billion-AUM (as of December 31), nine-year-old, faith-based fund firm near Boise for not meeting the firm's own religious screening standards. Last month, the ETF shop settled the charges for $300,000.

Robert John Netzly
Inspire Investing
CEO

On September 19, Corey Schuster, co-chief of the asset management unit within the division of enforcement of the U.S. Securities and Exchange Commission (SEC), unveiled charges against Meridian, Idaho-based Inspire Investing, LLC (home of the Inspire ETFs). In the 10-page order, the regulatory agency focuses on what the Inspire team calls their "biblically responsible investing" (BRI) strategy and accuses Inspire of violating anti-fraud and disclosure requirements of the Investment Advisers Act and the Investment Company Act by failing to deliver on their BRI promises in their eight ETFs and their SMAs. As is typical, Inspire neither admitted nor denied the SEC's findings while also agreeing to a cease-and-desist settlement and the monetary penalty. Inspire also agreed to hire an independent compliance consultant.

More specifically, SEC investigators (led by Jonathan Katz, with help from Joan Price and supervision by Schuster, Andrew Dean, and Jeffrey Shank) say that the Inspire team promised to use data-driven methodology to exclude all companies involved "in certain enumerated business practices" (such as supporting abortion, alcohol, cannabis, embryonic stem cell research, gambling, human rights violations, IVF, LGBT advocacy, pornography, ad tobacco), while in practice excluding some such companies but not excluding others while relying on manual research of donor and sponsor lists and not typically researching individual companies. The SEC focused specifically on the period from 2019 until March 2024. (Inspire launched in August 2015, and their first ETFs debuted in February 2017.)

"Inspire Investing is pleased to have resolved the U.S. Securities and Exchange Commission's (SEC) inquiry into our historical screening policies and procedures," the Inspire team writes in a statement, revealing that the SEC's investigation began "with a non-public fact-finding inquiry" in September 2022. "We are pleased that the SEC recognized our cooperation in the investigation and our remediation efforts. We continue our ongoing commitment to enhance and refine the Inspire Impact Score methodology to provide a potently biblical tool for guiding faith-based investment decisions now and into the future."

The Inspire team notes that the regulatory agency "has investigated a significant number of investment firms offering screened investments, including secular firms with ESG or similar strategies, as well as faith-based firms."

"The SEC Order takes no issue with the conservative, biblical values Inspire applies to screening categories. Inspire remains committed to providing unapologetically biblical investment screening on issues of critical importance to faith-based investors around the world, including abortion and LGBT activism," the Inspire team writes. "The SEC Order raises no issues with our financial condition or the performance of our funds. The weaknesses identified by the SEC were in relation to the definitions and disclosure being provided in fund prospectuses and other materials matching the details of our previous data set, collection processes and procedures in use at the time, which the firm has already taken steps to address prior to the Order."

The Inspire team describes the SEC's actions as being about "certain historic processes, procedures, and marketing practices" at Inspire.

"We are grateful to receive guidance from the SEC on what it considers important regarding modern faith-based investment screening. We have full confidence that the enhancements we have made and will continue to make to our processes and procedures put us and our clients on solid ground in the current regulatory landscape," the Inspire team writes. "We have learned many lessons from the ever-evolving regulatory environment and are fully committed to continuing to improve. We are grateful to our investors for their continued trust in our offerings and passion to help expand the biblically responsible investing movement to see every Christian investing for the glory of God!"

"Investors must be able to rely on advisers acting consistently with their represented investment process or strategy," Schuster states. "Here, Inspire Investing's investment screening process was not what it represented to investors, resulting in it making investments that were contrary to its stated investment criteria."

Printed from: MFWire.com/story.asp?s=67975

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