A “biblically minded” ETF provider will pay $300,000 to settle Securities and Exchange Commission charges that its evaluation practices misled its clients.
The Idaho-based Inspire Investing reports about $2.5 billion in managed assets. The firm touts a “biblically responsible investing” approach for its ETFs and individual accounts that claimed to exclude companies that did not “align with biblical values,” according to the SEC order.
To do this, Inspire created a list of prohibited activities and screened potential investing opportunities for their involvement.
The taboo topics included “Abortion Legislation” or “Procedures,” “Alcohol,” “Cannabis Retail” or “Cultivation/Processing,” “Embryonic Stem Cell Research,” “Human Rights [exploitation],” “In Vitro Fertilization,” “LGBT Legislation,” “Philanthropy,” or “Promotion,” “Pornography” and “Tobacco,” among others.
According to the order, Inspire told clients its process was “objective” and “rules-based” that would offer “sound, biblically responsible investment decisions” that differentiated itself from previous faith-based investing methodologies that could not “stand up to the demanding due-diligence standards of serious investors.”
However, the actual investment process deviated from what it promised investors, according to the commission.
In evaluating companies regarding their connection to the topics, the firm relied on in-house manual research by a small staff, without “best-practice disciplines of data science,” as promised. Instead, the researchers mainly cross-referenced company names with donor and sponsor lists of national organizations deemed to be associated with those activities.
“Despite its representations to clients, Inspire did not typically conduct research at an individual company level to determine whether a company engaged in any of the prohibited activities,” the complaint read.
It created a situation in which Inspire excluded some companies because of their connection to those topics, while other companies involved with those areas remained investment opportunities.
The commission alleged that the firm also lacked policies and procedures that established a process for evaluating companies’ activities to deem them suitable for investment, which sometimes led to “inconsistent application” of their criteria.
The firm didn’t admit nor deny the findings, and according to a statement from the firm, the commission first contacted them with a “non-public fact-finding inquiry” in September 2022, along with “secular firms with ESG” as well as other faith-based registrants.
The firm felt it was on “solid ground” and noted the SEC settlement didn’t question the firm’s financial condition, the performance of the ETFs or the “conservative, biblical values” Inspire used in screening investments.
“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 statement read.
Inspire CEO Robert Netzly said the firm is glad the issue has been resolved.
“After intense scrutiny, we’re are very confident that our current processes in place now for almost a year line up with the most recent viewpoint of the regulatory landscape,” he said. “We’re confident we’re now on solid compliance footing.”
In addition to the $300,000 penalty, Inspire agreed to a censure, a cease-and-desist and also pledged to hire a third-party compliance consultant.