A “biblical-minded” ETF provider will pay $300,000 to settle Securities and Exchange Commission charges that its valuation practices misled its clients.
Idaho-based Inspire Investing reports about $2.5 billion in assets under management. The firm claims a “biblically responsible investing” approach to its ETFs and individual accounts that it claimed excluded companies that did not “conform to biblical values.” according to the order of the SEC.
To do this, Inspire created a list of prohibited activities and considered possible investment opportunities for their inclusion.
Taboo topics included “Abortion Legislation” or “Procedures”, “Alcohol”, “Cannabis Retail” or “Cultivation/Processing”, “Embryonic Stem Cell Research”, “Human Rights (Exploitation), “Fertilization in vitro”, “LGBT Legislation”, “Philanthropy” or “Promotion”, “Pornography” and “Tobacco”, among others.
According to the order, Inspire told clients that its process was “objective” and “rules-based” that would provide “sound, biblically responsible investment decisions” that differentiated itself from previous faith-based investment methodologies , which could not “resist the demands”. due diligence standards of serious investors.”
However, the actual investment process deviated from what was promised to investors, according to the commission.
In evaluating companies about their relevance to the topics, the firm relied on manual internal research by a small staff, without the promised “best practice data science disciplines.” Instead, the researchers mostly cross-referenced the names of the companies with lists of donors and sponsors of national organizations deemed to be associated with those activities.
“Despite its representations to clients, Inspire typically did not conduct research at the level of an individual company to determine whether a company engaged in any of the prohibited activities,” the complaint said.
It created a situation in which Inspire excluded some companies because of their relevance to those topics, while other companies involved in those areas remained investment opportunities.
The commission alleged that the firm also lacked policies and procedures that created a process for evaluating the activities of companies to deem them suitable for investment, which sometimes led to “inconsistent application” of their criteria.
The firm neither accepted nor denied the findings, and according to a statement from the firmthe commission first contacted them with a “non-public fact-finding inquiry” in September 2022, along with “secular ESG firms” as well as other faith-based registrants.
The firm felt it was on “solid ground” and noted that the SEC settlement did not call into question the firm's financial condition, the performance of the ETFs or the “conservative, biblical values” Inspire used in its investment review.
“Inspire remains committed to providing unapologetically biblical investment consideration on issues of critical importance to faith-based investors around the world, including abortion and LGBT activism,” the statement said.
Inspire CEO Robert Netzly said the firm is pleased the matter has been resolved.
“After intensive review, we are very confident that our current processes in place now for nearly a year align with the latest view of the regulatory landscape,” he said. “We are confident that we are now on a solid foundation of compliance.”
In addition to the $300,000 penalty, Inspire agreed to a censure, a cease and desist, and also agreed to hire a third-party compliance consultant.