Fiducian Investment Management Services engaged in misleading and deceptive conduct for nine years in how it described its Diversified Social Aspirations Fund, the Australian Securities and Investments Commission has alleged in a civil court action.
ASIC alleges the fund built the portfolio via underlying investment managers and funds, which had their own bespoke environmental, social and governance (ESG) standards for choosing investments.
In some cases, these investments weren't in line with Fiducian's product disclosure statement.
"The share portfolios comprise investments in companies that aim to be positive for society and for the environment and aim to avoid investments in harmful activities," the PDS read.
ASIC claims the document contained statements Fiducian would monitor the investment styles and exposure of the portfolios, but lacked the required information to do so.
The regulator alleged the company also failed to record, lodge or address investor concerns the fund backed companies in contradiction of the PDS, including BHP, Rio Tinto, Woodside, Newcrest Mining and Orica.
ASIC is seeking declarations, pecuniary penalties and adverse publicity orders in the NSW Supreme Court.
The case provided a clear example of how not to run an ethical fund, ASIC deputy chair Sarah Court said.
"Even when alerted that the fund held investments that were contrary to its PDS, FIMSL continued to reissue the PDS without making any changes for over nine years," she said.
"We will allege FIMSL took a perfunctory approach to its oversight of the fund, attracting investors with claims it made no effort to validate, and in failing to independently monitor investments in the underlying funds to ensure they were consistent with the representations in the PDS."
Fiducian is a fully-owned subsidiary of the publicly traded Fiducian Group. Its shares tumbled more than three per cent in the wake of ASIC taking the action.
In a statement released to the ASX, a company spokesman said the subsidiary had fully co-operated with ASIC's investigations, was closely reviewing court documents, and would not comment further on an ongoing legal matter.
The Diversified Social Aspirations Fund, established in 2015 to meet client demand for a socially responsible and ethical investment option, was closed in 2024.
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