What changed in this filing

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Item 1A. Risk Factors

2024-02-23 compared with 2023-02-28 · 109 added, 117 removed, 363 unchanged (38% of the section changed)

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The financial markets are highly volatile and prices for financial assets may increase or decrease for many reasons, including general economic conditions, trade uncertainties, rising or falling interest rates, the strengthening or weakening of the U.S.

dollar, events such as the COVID-19 pandemic and the war in Ukraine, political events, acts of terrorism and other matters beyond our control.

dollar, events such as a pandemic or war, geopolitical conflicts, political events, acts of terrorism and other matters beyond our control.

Substantially all our revenues are derived from advisory fees earned on our AUM, in both the international and U.S.

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Trading involves risks including the potential lack of an active market for fund shares, abnormally wide bid/ask spreads (the difference between the prices at which shares of an ETP can be bought and sold) that can exist for a variety of reasons and losses from trading.

These risks can be exacerbated during periods when there is low demand for an ETP, when the markets in the underlying investments are closed, when markets conditions are extremely volatile or when

trading is disrupted.

These risks can be exacerbated during periods when there is low demand for an ETP, when the markets in the underlying investments are closed, when market conditions are extremely volatile or when trading is disrupted.

This could result in limited growth or a reduction in the overall ETP market and result in our revenues not growing as rapidly as it has in the recent past or even in a reduction of revenues.

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We derive a substantial portion of our revenues from a limited number of products and, as a result, our operating results are particularly exposed to investor sentiment toward investing in the products’ strategies and our ability to maintain the AUM of these products, as well as the performance of these products.

At December 31, 2022, 55% of our AUM was concentrated in ten of our WisdomTree ETPs with approximately 20% in four of our domestic equity ETFs, 16% in the WisdomTree Floating Rate Treasury Fund, or USFR, 13% in three of our precious metal products and 6% in two of our emerging markets ETFs.

At December 31, 2023, 54% of our AUM was concentrated in ten of our WisdomTree ETPs with approximately 18% in three of our domestic equity ETFs, 17% in the WisdomTree Floating Rate Treasury Fund, or USFR, 10% in three of our precious metal products, 6% in two of our emerging markets ETFs, and 3% in one of our international developed market equity ETPs.

As a result, our operating results are particularly exposed to the performance of these funds and our ability to maintain the AUM of these funds, as well as investor sentiment toward investing in the funds’ strategies.

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Also, a portion of the advisory fee revenues we receive on our ETPs backed by gold are paid in gold ounces.

In addition, we pay gold ounces to satisfy our deferred consideration obligation (See Note 10 to our Consolidated Financial Statements).

While we may readily sell the gold that we earn under these advisory contracts, we still may maintain a position.

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Third-Party Provider Risks

We currently primarily depend on Mellon Investments Corporation, Newton Investment Management North America, LLC and Voya Investment Management Co., LLC to provide portfolio management services, State Street Bank and Trust Company to provide us with critical administrative services to operate our business and our U.S.

We primarily depend on Mellon Investments Corporation, Newton Investment Management North America, LLC and Voya Investment Management Co., LLC to provide portfolio management services, State Street Bank and Trust Company to provide us with critical administrative services to operate our business and our U.S.

listed ETFs, and other third parties to provide many other critical services to operate our business and our U.S.

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We depend on third -party vendors to provide us with many services that are critical to operating our business, including Mellon Investments Corporation, Newton Investment Management North America, LLC and Voya Investment Management Co., LLC as sub -advisers providing portfolio management services, and State Street Bank and Trust Company, or State Street, to provide custody services, fund accounting, administration, transfer agency and securities lending services.

We also rely on third-party providers to perform index calculation services for our indexes and a third-party distributor for our products.

We also rely on third -party providers to license indexes to certain of our U.S.

listed ETFs, perform index calculation services for our indexes and a third -party distributor for our products.

The failure of any of these key vendors to provide us and our products with these services could lead to operational issues and result in financial loss to us and investors in our products.

We currently depend on HSBC and JP Morgan to provide us with critical physical custody services for precious metals that back our ETCs.

We depend on HSBC and JP Morgan to provide us with critical physical custody services for precious metals that back our ETCs.

The failure of HSBC and JP Morgan to adequately safeguard the physical assets could materially adversely affect our business and harm investors in our products.

Certain products are backed by physical metal and are subject to risks associated with the custody of physical assets, including the risk that access to the metal held in the secure facilities managed by HSBC and JP Morgan could be restricted by a pandemic (such as the COVID-19 pandemic), natural events (such as an earthquake) or human actions (such as a terrorist attack).

We depend on HSBC and JP Morgan to provide us with critical physical custody services for precious metals that back our ETCs.

Such products that are backed by physical metal are subject to risks associated with the custody of physical assets, including the risk that access to the metal held in the secure facilities managed by HSBC and JP Morgan could be restricted by a pandemic (such as the COVID -19 pandemic), natural events (such as an earthquake) or human actions (such as a terrorist attack).

In addition, there is a risk that the physical metal could be lost, stolen, damaged or restricted.

The failure of HSBC and JP Morgan to successfully provide us with these services could result in financial loss to us and investors in our products and our recovery of any losses from a custodian, sub -custodian or insurer may be inadequate.

We currently depend on Swissquote Bank Ltd and Coinbase Custody Trust LLC to provide us with critical custody services for digital currencies that back WisdomTree digital assets.

We depend on Swissquote Bank Ltd and Coinbase Custody Trust LLC to provide us with critical custody services for digital currencies that back WisdomTree digital assets.

The failure of Swissquote and/or Coinbase to adequately safeguard these digital assets could materially adversely affect our business and harm investors in this product.

We depend on Swissquote Bank Ltd and Coinbase Custody Trust LLC to provide us with critical custody services for digital currencies that back WisdomTree digital assets.

Products that are backed by digital currencies are subject to the risks associated with the custody of digital assets, including the risk that the digital currencies or the blockchain infrastructure could be impacted by hacks or other malicious actions.

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Operational and technical errors in the context of staking could damage the reputation of digital assets or result in losses for investors.

We currently depend on R&H Fund Services (Jersey) Limited in respect of the products issued by our Jersey-domiciled issuers, or ManJer Issuers, of ETCs (except WisdomTree Issuer X Limited), JTC Trust Company Jersey in respect of products issued by WisdomTree Issuer X Limited, APEX IFS Limited in respect of the products issued by WMAI and State Street Fund Services (Ireland) Limited in respect of the WisdomTree UCITS ETFs to provide us with critical administrative services to those products.

We depend on R&H Fund Services (Jersey) Limited in respect of the products issued by our Jersey-domiciled issuers, or ManJer Issuers, of ETCs (except WisdomTree Issuer X Limited), JTC Trust Company Jersey in respect of products issued by WisdomTree Issuer X Limited, APEX IFS Limited in respect of the products issued by WMAI and State Street Fund Services (Ireland) Limited in respect of the WisdomTree UCITS ETFs to provide us with critical administrative services to those products.

The failure of any of those providers to adequately provide such services could materially affect our operating business and harm investors in those products.

We currently depend upon R&H Fund Services (Jersey) Limited in respect of the products issued by the ManJer Issuers (except WisdomTree Issuer X Limited), JTC Trust Company Jersey in respect of products issued by WisdomTree Issuer X Limited, APEX IFS Limited in respect of the products issued by WMAI and State Street Fund Services (Ireland) Limited in respect of the WisdomTree UCITS ETFs, to provide fund accounting, administration and, transfer agency services, as well as custody services in the case of the WisdomTree UCITS ETFs.

We depend on R&H Fund Services (Jersey) Limited in respect of the products issued by the ManJer Issuers (except WisdomTree Issuer X Limited), JTC Trust Company Jersey in respect of products issued by WisdomTree Issuer X Limited, APEX IFS Limited in respect of the products issued by WMAI and State Street Fund Services (Ireland) Limited in respect of the WisdomTree UCITS ETFs, to provide fund accounting, administration and, transfer agency services, as well as custody services in the case of the WisdomTree UCITS ETFs.

The failure of any service provider to successfully provide these services could result in financial loss to the products, us and investors in those products.

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The failure of any of these key vendors to provide the WisdomTree UCITS ETFs with these services could lead to operational issues and result in financial loss to us and investors in the WisdomTree UCITS ETFs.

Failure of third-party vendors to maintain sufficient internal controls could adversely affect us.

If a third -party vendor fails to develop and maintain sufficient internal control processes or adequate data privacy controls and security systems, such failure could adversely affect us.

For example, we have been notified of a deficiency in the internal controls of a third -party vendor of software we utilize in our accounting processes.

We have identified sufficient mitigating controls to alleviate the deficiency and do not believe the third -party ’s deficiency has a material impact on our operations or financial reporting.

Any internal control failures that may arise in the future could adversely affect us if not sufficiently mitigated.

The products issued by our European business are subject to counterparty risks.

Any actual or perceived weakness of those counterparties could negatively impact the European business’ AUM and therefore the Company’s AUM, the relevant product and secondary pricing of the products on exchange, which could materially adversely affect our business.

The products issued by our European business depend on the services of counterparties, custodians and other agents and are thus subject to a variety of counterparty risks, including the following:

Products issued by the ManJer Issuers (except WisdomTree Issuer X Limited) are backed by physical metal and are subject to risks associated with the custody of metal, including the risk that access to the physically backed metal held in the vaults or secure warehouses of a custodian or sub-custodian could be restricted by natural events, such as an earthquake, or human actions, such as a terrorist attack, the risk that such physically backed metal in its custody could be lost, stolen or damaged, and the risk that our recovery of any losses from a custodian, sub-custodian or insurer may be inadequate.

Products issued by WisdomTree Issuer X Limited are backed by digital currencies and are subject to risks associated with the custody of digital assets, including the risk that the digital currency itself or the relevant blockchain infrastructure could be threatened by hacks, other malicious actions, breakdown or disturbance of the infrastructure and loss of the digital keys.

Products issued by WMAI, certain WisdomTree UCITS ETFs and certain products issued by the ManJer Issuers are backed by swap, derivative or similar arrangements are subject to risks associated with the creditworthiness of their counterparties, including the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the relevant arrangement (whether or not bona fide) or because of a credit, liquidity, regulatory, tax or operational problem.

The products issued by our European business depend on the services of counterparties, custodians and other agents and are therefore subject to a variety of counterparty risks, which are detailed above.

Products issued by WMAI, certain WisdomTree UCITS ETFs and certain products issued by the ManJer Issuers are backed by swap, derivative or similar arrangements, which are subject to risks associated with the creditworthiness of their counterparties, including the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the relevant arrangement (whether or not bona fide) or because of a credit, liquidity, regulatory, tax or operational problem.

Any deterioration of the credit or downgrade in the credit rating of a counterparty, or the custodian holding the collateral, could cause the associated products to trade at a discount to the value of the underlying assets.

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We have developed risk management policies and procedures and we continue to refine them as we conduct our business.

Many of our procedures involve oversight of third-party vendors that provide us with critical services such as portfolio management, custody, fund accounting and administration, and index calculation.

Many of our procedures involve oversight of third -party vendors that provide us with critical services such as portfolio management, custody, fund accounting and administration, and index calculation as further described in “Third -Party Provider Risks” above.

However, our policies and procedures to identify, monitor and manage risks may not be fully effective in mitigating our risk exposure.

Deficiencies in the risk management policies and procedures, internal systems and controls of our third -party vendors may adversely affect our systems and controls.

Moreover, we are subject to the risks of errors and misconduct by our employees, including fraud and non -compliance with policies.

These risks are difficult to detect in advance and deter, and could harm our business, results of operations or financial condition.

Although we maintain insurance and use other traditional risk-shifting tools, such as third-party indemnification, to manage certain exposures, they are subject to

terms such as deductibles, coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency.

Although we maintain insurance and use other traditional risk -shifting tools, such as third -party indemnification, to manage certain exposures, they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency.

If our policies and procedures do not adequately protect us from exposure and our exposure is not adequately covered by insurance or other risk -shifting tools, we may incur losses that would adversely affect our financial condition and could cause a reduction in our revenues as investors in our products shift their investments to the products of our competitors.

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Further consolidation within the industry may also put us at a competitive disadvantage.

We believe that due to the continuing evolution of the competitive landscape described above, we may experience pressures on our pricing and market share which could reduce our revenues and profit margins.

We believe that due to the continuing evolution of the competitive landscape described above, we have experienced, and may in the future experience, pressures on our pricing and market share, which could reduce our revenues and profit margins.

We rely on third-party distribution channels to sell our products, and increased competition, a failure to maintain business relationships and other factors could adversely impact our business.

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In addition, several of the largest custodial platforms and online brokerage firms eliminated trading commissions for ETFs.

Our arrangements with these platforms had offered us preferred or exclusive access for our products, enabling investors to purchase our products without paying commissions.

Exclusivity is no longer available, and we can provide no assurance that access to new opportunities will arise.

Any inability to access and successfully sell our products through our distribution channels could have a negative effect on our AUM levels and adversely impact our business.

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However, the investment approach of our equity products may not perform well during certain shorter periods of time during different points in the economic cycle.

We could lose our entire investments in companies including Securrency and Fnality if they are unable to raise capital, execute their respective business plans and successfully grow their businesses, which would have a material impact on our financial condition and results of operations.

We currently have various financial interests in companies including Securrency and Fnality valued at $35.7 million in the aggregate.

If these entities are unable to raise capital, execute their respective business plans and successfully grow their businesses, we may be required to reduce the value of our financial interests in these companies on our financial statements, which would adversely impact our financial results.

Furthermore, we could lose our entire financial interests in these entities if they are unable to satisfy their obligations as they become due and cease their operations.

Writing off the entire value of our financial interests would have a material impact on our financial condition and results of operations and may cause a decline in the price of our common stock.

See Note 8 to our Consolidated Financial Statements for additional information.

Operational Risks

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While we typically outsource portfolio management services to third -party sub -advisers for our products, in this case, we instead act as determination agent and place buy and sell orders directly with a broker to rebalance these crypto basket ETPs in line with the indices.

These rebalances occur either quarterly or annually depending on the product.

These rebalances typically occur quarterly.

Expanding trading volumes may increase the risk of trading errors.

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Operational errors in the process could materially affect our business and harm investors in these products.

The uncertainty regarding the U.K.’s exit from the EU could adversely affect our business.

left the EU on January 31, 2020, referred to as Brexit, subject to transitional arrangements which ended on December 31, 2020.

On December 30, 2020, the U.K.

and the EU entered into a Trade and Cooperation Agreement to regulate certain aspects of their relationship following the end of the transition period.

The enactment of the European Union (Future Relationship) Act 2020 brought into effect in the U.K.

certain provisions of the Trade and Cooperation Agreement.

The terms of the Trade and Cooperation Agreement contemplate further agreements and amendments to be negotiated and agreed.

There are legal and regulatory aspects of EU membership, such as certain financial services arrangements, which are not maintained by the Trade and Cooperation Agreement and where “equivalence” decisions have not been made and/or may be withdrawn unilaterally.

While the medium to long-term consequences of the decision to leave the EU and application of the Trade and Cooperation Agreement remain uncertain, the U.K.’s withdrawal from the EU has led to political and economic instability and volatility in the financial markets of the U.K.

and more broadly across Europe.

It may lead to a weakening in consumer, corporate and financial confidence in such markets, which may in turn have a negative impact elsewhere in the EU and more widely.

Among other things, the U.K.’s departure from the EU and the Trade and Cooperation Agreement could lead to instability, including volatility, in the foreign exchange markets, including volatility in the value of the pound sterling or the euro.

Deteriorating business, consumer or investor confidence could lead to (i) reduced levels of business activity, (ii) higher levels of default rates and impairment and (iii) mark to market losses in trading portfolios resulting from changes in credit ratings, share prices and solvency of counterparties.

These changes may impact how we conduct our business across Europe.

This uncertainty also could impact the broader global economy, including by reducing investor confidence and driving volatility.

Such uncertainty could lead to scenarios that adversely affect our business, including our revenues, from either a decrease in the value of our AUM or from outflows from our funds due to a perceived higher exposure of our Company to Brexit risk.

In addition, staking features, such as lock -up periods, staking reward payout periods and reward amounts, are not necessarily fixed over time and can cause liquidity risk or delay the standard settlement period.

This may cause redemptions to be delayed and may result in a financial loss to investors.

Catastrophic and unpredictable events could have a material adverse effect on our business.

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Any significant limitation or failure of our technology systems, or of our third-party vendors’ technology systems, or any security breach of our information and cyber security infrastructure, software applications, technology or other systems that are critical to our operations could interrupt or damage our operations and result in material financial loss, regulatory violations, reputational harm or legal liability.

We are dependent upon the effectiveness of our own, and our vendors’, information security policies, procedures and capabilities to protect the technology systems used to operate our business and to protect the data that reside on or are transmitted through them.

We are dependent upon the effectiveness of our own, and our vendors’, information security policies, procedures and capabilities to protect the technology systems used to operate our business, to protect the data that reside on or are transmitted through them and to maintain adequate internal controls.

Although we and our third -party vendors take protective measures to secure information, our and our vendors’ technology systems have experienced cybersecurity threats and may still be vulnerable to unauthorized access, computer viruses or other events that could result in inaccuracies in our information or system disruptions or failures, which could materially interrupt or damage our operations.

These risks may increase in the future as the Company develops and launches its mobile application.

These risks have increased with the launch of the WisdomTree Prime mobile application and may continue to increase in the future as the mobile application’s availability expands.

In addition, technology is subject to rapid change and we cannot guarantee that our competitors may not implement more advanced technology platforms for their products, which could affect our business.

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Our ability to operate effectively could be impaired if we fail to retain or recruit key personnel.

The success of our business is highly dependent on our ability to attract, retain and motivate highly skilled, and sometimes highly specialized, employees, including in particular, operations, product development, research and sales and marketing personnel.

employees generally may voluntarily terminate their employment at any time.

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Our results of operations are impacted by the magnitude of our expenses and may fluctuate as a result of inflation, as well as discretionary spending, including additional headcount, accruals for incentive compensation, marketing, advertising, sales and other expenses we incur in connection with our operations.

We are also establishing our digital assets business and expenses ultimately incurred in the near and long-term may be higher than anticipated.

We also have launched our digital assets business and expenses ultimately incurred in the near and long -term may be higher than anticipated.

Accordingly, fluctuations in our expenses could materially affect our operating results and may vary from quarter to quarter.

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listed ETFs is subject to the regulatory authority of FINRA.

The SEC has also recently adopted rule amendments, which are designed to modernize sales and marketing materials and, as a result, impact marketing materials.

The SEC also has recently adopted rule amendments that are designed to modernize sales and marketing materials and, as a result, impact marketing materials.

We are also subject to foreign laws and regulatory authorities with respect to operational aspects of our products that invest in securities of issuers in foreign countries, in the marketing, offer and/or sales of our products in foreign jurisdictions and in our offering of investment products domiciled outside of the U.S., such as our ETPs issued by the ManJer Issuers, UCITS ETFs and ETPs issued by WMAI.

Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of our business, including the authority to grant, and, in specific circumstances to cancel, permissions to carry on particular businesses.

Our or our ETPs’ failure to comply with applicable

laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser.

Even if a sanction imposed against us, our personnel or our ETPs is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us or our ETPs by regulators could harm our reputation and thus result in redemptions from our products and impede our ability to retain and attract investors in WisdomTree ETPs, all of which may reduce our revenues.

Our or our ETPs’ failure to comply with applicable laws or regulations could result in fines, censure, suspensions of personnel or other sanctions, including revocation of our registration as an investment adviser.

Even if a sanction imposed against us, our personnel or our ETPs is small in monetary amount, the adverse publicity arising from the imposition of sanctions against us, our personnel or our ETPs by regulators could harm our reputation and thus result in redemptions from our products and impede our ability to retain and attract investors in WisdomTree ETPs, all of which may reduce our revenues.

We face the risk of significant intervention by regulatory authorities, including extended investigation activity, adoption of costly or restrictive new regulations and judicial or administrative proceedings that may result in substantial penalties.

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Concerns have been raised at various times about ETFs’ possible contribution to market volatility as well as the disclosure requirements applicable to certain types of more complex ETFs.

In addition, the SEC approved a broad set of rules regarding data reporting and fund liquidity, fund valuation and funds’ use of derivatives, which are imposing additional expense and require additional administrative services and requirements, among other matters, in seeking to comply with the new rules.

In addition, the SEC recently approved a broad set of rules regarding data reporting and fund liquidity, fund valuation and funds’ use of derivatives, which are imposing additional expense and require additional administrative services and requirements, among other matters, in seeking to comply with these rules.

New laws or regulations, or changes in the enforcement of existing laws or regulations, applicable to us or investors in our products also may adversely affect our business, and our ability to function in this environment will depend on our ability to constantly monitor and react to these changes.

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The amount of time to resolve lawsuits is unpredictable and defending ourselves may divert management’s attention from the day -to-day operations of our business, which could adversely affect our business, results of operations, financial condition and cash flows.

In addition, an unfavorable outcome in any such litigation, including claims brought by investors in our WisdomTree WTI Crude Oil 3x Daily Leveraged ETP totaling approximately €15.8 million ($16.9 million), could have a material adverse effect on our business, results of operations, financial condition and cash flows.

In addition, an unfavorable outcome in any such litigation, including actual and potential claims by investors in our WisdomTree WTI Crude Oil 3x Daily Leveraged ETP totaling approximately €23.6 million ($26.1 million), could have a material adverse effect on our business, results of operations, financial condition and cash flows.

See Note 14 to our Consolidated Financial Statements for additional information.

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The occurrence of any of the foregoing could result in unexpected expenses, reduce our revenues and adversely affect our business and financial results.

We have been issued a patent, but may not be able to enforce or protect our patent and other intellectual property rights, which may harm our ability to compete and harm our business.

Although we have a patent relating to our index methodology and the operation of our ETFs, our ability to enforce our patent and other intellectual property rights is subject to general litigation risks.

If we cannot successfully enforce our patent, we may lose the benefit of a future competitive advantage that it would otherwise provide to us.

If we seek to enforce our rights, we could be subject to claims that the intellectual property right is invalid or is otherwise not enforceable.

We have been issued trademark and other intellectual property rights, but may not be able to enforce or protect such intellectual property rights, which may harm our business.

Although we have trademarks, including the marks WisdomTree ® , WisdomTree Prime™ and Modern Alpha ® , and other intellectual property rights that are registered in the U.S.

and certain other countries, including a patent relating to our index methodology and the operation of our ETFs, our ability to enforce such intellectual property rights is subject to general litigation risks.

If we cannot successfully enforce our intellectual property rights, we may lose the value of our brand and business reputation.

If we seek to enforce our rights, we could be subject to litigation, including challenges to our registered intellectual property right and claims that our intellectual property right is invalid or is otherwise not enforceable in jurisdictions where our intellectual property right is not registered.

Furthermore, our assertion of intellectual property rights could result in the other party seeking to assert alleged intellectual property rights of its own or assert other claims against us, which could harm our business.

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Digital Assets Risks

As we endeavor to expand our digital asset product offerings and services beyond our existing ETP business, we believe the risks associated with our digital assets business include, but are not limited to, the following risks:

As we endeavor to expand our digital assets product offerings and services beyond our existing ETP business, we believe the risks associated with our digital assets business include, but are not limited to, the following risks:

Competition risks

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Failure to do so could negatively impact the success of our digital assets business.

New product risks

We have and may continue to spend substantial time and resources developing our digital assets product offerings and services.

If these products and initiatives are not successful, or their implementation or launches are delayed, including in connection with our inability to obtain new product regulatory approvals, we may not be able to offset their costs, which could have an adverse effect on our business, reputation, financial condition and operating results.

Our digital assets business subjects us to risks similar to those associated with any new product offerings, including, but not limited to, our ability to accurately anticipate market demand and adoption, technical issues with the operation of the products, and legal and regulatory risks as discussed herein.

Substantial risks and uncertainties are associated with the introduction of new products and services, including rapid technological change in the industry, significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices, protection of intellectual property and other confidential information, the competition for employees with the necessary expertise and experience, and producing sales and other materials that fully and accurately describe the product or service and its underlying risks and that are compliant with applicable regulations.

New products or services may fail to operate or perform as expected and may not produce anticipated efficiencies, savings or benefits.

Our failure to manage these risks and uncertainties also exposes us to enhanced risk of operational lapses and third -party claims, which may result in the recognition of financial statement liabilities.

Failure to successfully manage these risks in the development and implementation of our digital assets business could have a material adverse effect on our business, reputation, financial condition and operating results.

Outsourced service provider risks

We rely on third-party service providers in connection with different facets of our digital assets business, including but not limited to custodial arrangements, blockchain and wallet infrastructure, banking relationships, cloud computing, payment processors, data infrastructure, compliance support and product development, including mobile application development, all of which are critical to the success of our digital assets business.

The loss of a critical third-party service provider could adversely impact our digital assets business, operating results, and financial condition.

If any third-party service providers fail to adequately or appropriately render services to satisfy their obligations to us, or our customers or consumers on our behalf, such failure could negatively impact the success of our digital assets business.

In addition, such third-party service providers may be subject to financial, legal, regulatory and labor issues, data security and cybersecurity incidents, denial-of-service attacks, sabotage, privacy breaches or violations, fraud and other misconduct which could directly or indirectly have an impact on our digital asset products and services.

We rely on third -party service providers in connection with different facets of our digital assets business, including but not limited to custodial arrangements, blockchain and wallet infrastructure, banking relationships, cloud computing, payment platforms and processors, data infrastructure, customer support, compliance support and product development, including mobile application development, all of which are critical to the success of our digital assets business.

In addition, we have partnered with a financial institution to provide co -branded debit cards to retail customers.

The loss of, or interruption of service from, a critical third -party service provider could adversely impact our digital assets business, operating results and financial condition.

We may incur significant costs to resolve any such disruptions in service.

In addition, such third -party service providers may be subject to financial, legal, regulatory and labor issues, data security and cybersecurity incidents, denial -of-service attacks, sabotage, privacy breaches or violations, fraud and other misconduct, which could directly or indirectly have an impact on our digital assets products and services.

If any third -party service provider fails to adequately or appropriately render services or fails to meet its contractual requirements (including compliance with applicable laws and regulations), we could be subject to regulatory enforcement actions and claims from third parties (including our customers), and suffer economic and reputational harm that could have an adverse effect on our digital assets business, operating results and financial condition.

Cybersecurity risks

The use of various technologies is vital to our digital assets business and will become more prevalent, which will make us more susceptible to operational and data security risks resulting from a breach in cybersecurity, including cyberattacks.

A breach in cybersecurity, intentional or unintentional, may have an adverse impact on our digital assets business in many ways, including but not limited to, the loss of proprietary information, theft or corruption of data, denial-of-service attacks on websites or network resources, and the unauthorized release or misuse of confidential information.

A breach in cybersecurity, intentional or unintentional, may have an adverse impact on our digital assets business in many ways, including but not limited to, the loss or destruction of proprietary information, theft or corruption of data, denial -of-service attacks on websites or network resources, and the unauthorized release or misuse of confidential information.

Regulatory risks

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The effect of any future legal or regulatory change or interpretation both domestically and internationally is unknown and such change could be substantial and adverse to our digital assets business.

In addition, we are actively engaged or plan to be engaged with a variety of U.S.

federal and state regulators (e.g., the SEC, FINRA, NYDFS and other state regulators) to secure, as necessary, the appropriate regulatory, registration and/or licensing approvals for various business initiatives and operations, including but not limited to:

In addition, we are actively engaged with a variety of U.S.

federal and state regulators (e.g., the SEC, FINRA, NYDFS and other state regulators) to secure, as necessary, or maintain the appropriate regulatory, registration and/or licensing approvals for various business initiatives and operations, including but not limited to:

a New York state -chartered limited purpose trust company;

money services and money transmitter business;

broker-dealer;

limited purpose broker -dealer ;

transfer agent;

investment adviser;

and investment funds.

As we seek to expand globally, similar approvals and/or reliance on exemptions will be required in applicable foreign markets, which may also involve approvals specific to a digital asset or related business.

If we are successful in securing the appropriate regulatory, registration and/or licensing approvals, or otherwise relying on, seeking or confirming exemptions therefrom, for these different initiatives in connection with our digital assets business, we will be subject to a myriad of complex and evolving global policy frameworks and associated regulatory requirements that we would need to comply with, or otherwise be exempt from, in seeking to ensure our digital asset products and services are successfully brought to different markets in a compliant manner.

Failure to secure and/or comply with any such approvals and exemptions could have an adverse effect on our digital assets business.

For example, we are licensed as a money transmitter or the equivalent in many U.S.

states and the District of Columbia, but we may be unable to obtain such licenses in all U.S.

states (including in the state of New York) or may experience significant delays, and this could have an adverse effect on our digital assets business.

As we seek to expand globally, similar approvals and/or reliance on exemptions will be required in applicable foreign markets, which also may involve approvals specific to a digital assets or related business.

As we secure the appropriate regulatory, registration and/or licensing approvals, or otherwise rely on, seek or confirm exemptions therefrom, in connection with our digital assets business, we are and will be subject to a myriad of complex and evolving global policy frameworks and associated regulatory requirements that we need to comply with, or otherwise be exempt from, to ensure our digital assets products and services are successfully brought to different markets in a compliant manner.

Failure to secure and/or comply with any such approvals and exemptions could result in, among other things, revocation of required licenses or registrations, loss of approved status, private litigation, administrative enforcement actions, sanctions, civil and criminal liability, and constraints on our ability to continue to operate our digital assets business, and have an adverse effect on our digital assets business.

Blockchain infrastructure risks

The consensus or governance mechanisms of blockchain networks are subject to change and malfunctions and may not receive sufficient support from users and miners, which could negatively impact the blockchain network’s ability to grow and respond to challenges.

In addition, blockchain networks face significant challenges in connection with the volume, speed and security of transactions and their efforts to increase or enhance such characteristics of the blockchain network may not be successful.

The consensus or governance mechanisms of blockchain networks are subject to change and malfunctions and may not receive adequate adoption from users and miners, which could negatively impact the blockchain network’s ability to scale and improve programmability, transparency, auditability and security.

In addition, blockchain networks face significant challenges in connection with the volume, speed, security and cost of transactions, and their efforts to increase or enhance such characteristics of the blockchain network may not be successful or adversely affect other characteristics of the blockchain network.

If the digital asset awards for verifying and confirming transactions on a blockchain network are not sufficiently high to incentivize miners, miners may cease to verify and confirm such transactions or otherwise demand higher fees, which could negatively affect the value of a digital asset.

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Anti-Money Laundering (“AML”) risks

The decentralized infrastructure and anonymous or pseudonymous nature of digital assets could facilitate and create the opportunity for money laundering and terrorist financing activities, thereby circumventing certain anti-money laundering and counter terrorist financing laws and regulations designed to prevent financial crimes both domestically and internationally which could negatively impact our digital assets business.

In addition, certain aspects of our digital assets business will have significantly greater anti-money laundering risk, including risk of fines or sanctions, than our historical ETF business due to the greater number of potential customers, which may also include customers in foreign markets considered to be higher risk and/or customer types considered to be higher risk, for which anti-money laundering and related obligations will apply.

The decentralized infrastructure and anonymous or pseudonymous nature of digital assets could facilitate and create the opportunity for money laundering and terrorist financing activities, thereby circumventing certain anti -money laundering and counter terrorist financing laws and regulations designed to prevent financial crimes which could negatively impact our digital assets business.

In addition, certain aspects of our digital assets business will have significantly greater anti -money laundering risk, including risk of fines or sanctions, than our historical ETP business due to the greater number of potential customers, which may also include customers considered to be higher risk and/or customer types considered to be higher risk, for which anti -money laundering and related obligations will apply.

Data privacy risks

In connection with the products or services offered by our digital assets business, we may collect, store, process, or transmit personal data of a customer or consumer to a significantly greater extent than in our historical ETF business.

Any change or failure to comply with data privacy laws or regulations related to the collection, processing, use and storage of personal data could materially affect our digital assets business and overall financial health.

In connection with the products or services offered by our digital assets business, we may collect, store, process, or transmit nonpublic information (including personally identifiable information and sensitive personally identifiable information) of a customer or consumer to a significantly greater extent than in our historical ETP business.

Any change or failure to comply with data privacy laws or regulations related to the collection, processing, use and storage of such nonpublic information could materially affect our digital assets business and overall financial health.

The risk of loss in purchasing, selling, trading, using or holding digital assets can be substantial.

The price and liquidity of digital assets may be subject to high degrees of volatility resulting in large deviations or fluctuations from normalized levels.

There is also heightened custodial risks due to the unique safekeeping attributes associated with public and private keys of digital assets.

There is also heightened custodial risk due to the unique safekeeping attributes associated with public and private keys of digital assets.

Other Company Risks

Responding to actions of activist stockholders against us has been costly and the possibility that activist stockholders may wage proxy contests or seek representation on our Board of Directors in the future may be disruptive and cause uncertainty about the strategic direction of our business.

During fiscal year 2022, we were the target of stockholder activism whereby certain investors (the “Investor Group”) notified us of their intention to nominate three director candidates to stand for election to the Board of Directors at the 2022 Annual Meeting of Stockholders.

On May 25, 2022, we entered into a cooperation agreement (the “Cooperation Agreement”) with the Investor Group whereby we agreed to, among other things, increase the size of our Board of Directors by two directors to a total of nine directors and appoint Lynn S.

Blake and Deborah Fuhr to the Board of Directors.

As part of the Cooperation Agreement, the Investor Group agreed to customary standstill provisions, which are currently in effect and will remain in effect until the earlier of (a) the date that is 30 calendar days prior to the deadline for the submission of director nominations by stockholders for the 2023 Annual Meeting of Stockholders and (b) the date that is 90 calendar days prior to the first anniversary of the 2022 Annual Meeting of Stockholders.

Responding to actions by the Investor Group has been costly.

Actions by activist stockholders to seek representation on our Board of Directors in the future may similarly impact us and could cause uncertainty about the strategic direction of our business.

Activist stockholders, such as the Investor Group, may from time to time attempt to effect changes in our strategic direction, and in furtherance thereof, may seek changes in how our Company is governed.

Our Board of Directors and management strive to maintain constructive, ongoing communications with our stockholders, including the Investor Group, and welcome their views and opinions with the goal of enhancing value for all stockholders.

During fiscal years 2022 and 2023, we were the target of stockholder activism whereby a certain investor, acting together with other investors during 2022 (the “Investor Group”) and acting alone during 2023 (the “Investor”), notified us of their intention to nominate director candidates to stand for election to the Board of Directors at the 2022 and 2023 Annual Meetings of Stockholders.

On May 25, 2022, we entered into a cooperation agreement (the “Cooperation Agreement”) with the Investor Group whereby we agreed, among other things, to increase the size of our Board of Directors by two to a total of nine directors and appoint two nominees proposed by the Investor Group.

At the 2023 Annual Meeting of Stockholders, our stockholders elected five of our six nominees to the Board of Directors and one of three nominees proposed by the Investor.

Responding to actions by the Investor and the Investor Group has been costly and actions by activist stockholders to seek representation on our Board of Directors in the future may similarly impact us.

Activist stockholders, such as the Investor, may from time to time attempt to effect changes in our strategic direction, and in furtherance thereof, may seek changes in how our Company is governed.

Our Board of Directors and management strive to maintain constructive, ongoing communications with our stockholders, including the Investor, and welcome their views and opinions with the goal of enhancing value for all stockholders.

However, an activist campaign that seeks to replace members of our Board of Directors or changes in our strategic direction could have an adverse effect on us because:

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A change of control of our Company would automatically terminate our investment management agreements relating to the WisdomTree U.S.

listed ETFs unless the Board of Trustees of the WisdomTree Trust and shareholders of the WisdomTree U.S.

listed ETFs voted to continue the agreements.

listed ETFs and Digital Funds, unless the Board of Trustees of the WisdomTree Trust, WisdomTree Digital Trust and shareholders of each voted to continue the agreements.

A change in control could occur if a third party were to acquire a controlling interest in our Company.

Under the Investment Company Act, an investment management agreement with a fund must provide for its automatic termination in the event of its assignment.

The fund’s board must vote to continue such an agreement following any such assignment and the shareholders of the WisdomTree U.S.

listed ETFs must approve the assignment.

The fund’s board must vote to continue such an agreement following any such assignment and the shareholders of the WisdomTree Trust and WisdomTree Digital Trust must approve the assignment.

The cost of obtaining such shareholder approval can be significant and ordinarily would be borne by us.

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In our case, an assignment of our investment management agreements may occur if a third party were to acquire a controlling interest in our Company.

We cannot be certain that the Trustees of the WisdomTree U.S.

listed ETFs would consent to assignments of our investment management agreements or approve new agreements with us if a change of control occurs.

And even if such approval were obtained, approval from the shareholders of the WisdomTree U.S.

listed ETFs would be required to be obtained;

We cannot be certain that the Trustees of the WisdomTree Trust and WisdomTree Digital Trust would consent to assignments of our investment management agreements or approve new agreements with us if a change of control occurs.

And even if such approval were obtained, approval from the shareholders of the WisdomTree Trust and WisdomTree Digital Trust would be required to be obtained;

such approval could not be guaranteed and even if obtained, likely would result in significant expense.

This restriction may discourage potential purchasers from acquiring a controlling interest in our Company.

Our revenues could be adversely affected if the Independent Trustees of the WisdomTree Trust do not approve the continuation of our advisory agreements or determines that the advisory fees we receive from the WisdomTree ETFs should be reduced.

Our revenues could be adversely affected if the Independent Trustees of the WisdomTree Trust or WisdomTree Digital Trust, as applicable, do not approve the continuation of our advisory agreements or determine that the advisory fees we receive from the WisdomTree U.S.

listed ETFs or Digital Funds should be reduced.

Our revenues are derived primarily from investment advisory agreements with related parties.

Our advisory agreements with the WisdomTree Trust and the fees we collect from the WisdomTree U.S.

listed ETFs are subject to review and approval by the Independent Trustees of the WisdomTree Trust.

Our advisory agreements with the WisdomTree Trust and WisdomTree Digital Trust, and the fees we collect from the WisdomTree U.S.

listed ETFs and Digital Funds are subject to review and approval by the Independent Trustees of the WisdomTree Trust and WisdomTree Digital Trust, as applicable.

The advisory agreements are subject to initial review and approval.

After the initial two-year term of the agreement for each ETF, the continuation of such agreement must be reviewed and approved at least annually by a majority of the Independent Trustees.

After the initial two -year term of the agreement for each ETF or Digital Fund, the continuation of such agreement must be reviewed and approved at least annually by a majority of the Independent Trustees.

In determining whether to approve the agreements, the Independent Trustees consider factors such as the nature and quality of the services provided by us, the fees charged by us and the costs and profits realized by us in connection with such services, as well as any ancillary or “fall -out ” benefits from such services, the extent to which economies of scale are shared with the WisdomTree U.S.

listed ETFs, and the level of fees paid by other similar funds.

listed ETFs or Digital Funds, and the level of fees paid by other similar funds.

Our revenues would be adversely affected if the Independent Trustees do not approve the continuation of our advisory agreements or determines that the advisory fees we charge to any particular fund are too high, resulting in a reduction of our fees.

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The market price of our common stock has been fluctuating significantly and may continue to do so, depending upon many factors, some of which may be beyond our control, including:

the ultimate duration of the COVID-19 pandemic or the war in Ukraine and their short-term and long-term impact on our business and the global economy;

• actions of activist stockholders against us, which have been costly and may be disruptive and may cause uncertainty about the strategic direction of our business;

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We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes or to repurchase the Convertible Notes upon a fundamental change.

We currently have outstanding $60.0 million in aggregate principal amount of 4.25% convertible senior notes due 2023, $150.0 million of 3.25% convertible senior notes due 2026 and $130.0 million in aggregate principal amount of 5.75% convertible senior notes due 2028, which we collectively refer to as the Convertible Notes.

We currently have outstanding $150.0 million of 3.25% convertible senior notes due 2026 and $130.0 million in aggregate principal amount of 5.75% convertible senior notes due 2028, which we collectively refer to as the Convertible Notes.

Holders of the Convertible Notes have the right to require us to repurchase their notes upon the occurrence of certain change of control transactions or liquidation, dissolution or common stock delisting events (each, a “fundamental change”), at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, as described in the respective indentures between us and the trustee.

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The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and liquidity.

We currently have outstanding $150.0 million in aggregate principal amount of 3.25% convertible senior notes due 2026 and $130.0 million in aggregate principal amount of 5.75% convertible senior notes due 2028, which we collectively refer to as the Convertible Notes.

In the event the conditional conversion feature of the Convertible Notes is triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option, as described in the indentures.

If one or more holders elect to convert their notes, we would be required to settle any converted principal through the payment of cash, which could adversely affect our liquidity.

Preferred Shares issued in connection with the ETFS Acquisition contain redemption rights, which, if triggered, could materially impact our financial position.

In connection with the ETFS Acquisition, we issued 14,750 shares of preferred stock, or Preferred Shares, to ETFS Capital, which are convertible into 14,750,000 shares of our common stock, subject to certain restrictions.

ETFS Capital also has redemption rights for the Preferred Shares to protect against corporate events such as our having an insufficient number of shares of authorized common stock to permit full conversion and if, upon a change of control of us, ETFS Capital does not receive the same amount per Preferred Share that it would have received had the Preferred Shares been converted prior to a change of control.

Any such redemption will be at a price per Preferred Share equal to the dollar volume-weighted average price for a share of common stock for the 30-trading day period ending on the date of such attempted conversion or change of control, as applicable, multiplied by 1,000.

The redemption value of the Preferred Shares was $78.0 million at December 31, 2022.

Future issuances of our common stock could lower our stock price and dilute the interests of existing stockholders.

We may issue additional shares of our common stock in the future, either in connection with an acquisition or for other business reasons.

The issuance of a substantial amount of common stock could have the effect of substantially diluting the interests of our current stockholders.

In addition, the sale of a substantial amount of common stock in the public market, either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such common stock as consideration or by investors who acquired such common stock in a private placement, could have a material adverse effect on the market price of our common stock.

Series A Non-Voting Convertible Preferred Stock issued in connection with the ETFS Acquisition contain redemption rights, which, if triggered, could materially impact our financial position.

In connection with the ETFS Acquisition, we issued 14,750 shares of Series A Non -Voting Convertible Preferred Stock, or Series A Preferred Stock, to ETFS Capital, which are convertible into 14,750,000 shares of our common stock, subject to certain restrictions.

ETFS Capital also has redemption rights for the Series A Preferred Stock to protect against corporate events such as our having an insufficient number of shares of authorized common stock to permit full conversion and if, upon a change of control of us, ETFS Capital does not receive the same amount per share of Series A Preferred Stock that it would have received had these shares been converted prior to a change of control.

Any such redemption will be at a price per share of Series A Preferred Stock equal to the dollar volume -weighted average price for a share of common stock for the 30 -trading day period ending on the date of such attempted conversion or change of control, as applicable, multiplied by 1,000.

The redemption value of the Series A Preferred Stock was $96.9 million at December 31, 2023.

Future issuances of our common stock or equity-linked securities could lower our stock price and dilute the interests of existing stockholders.

We may issue additional shares of our common stock or equity -linked securities in the future, either in connection with an acquisition or for other business reasons.

The issuance of a substantial amount of common stock or equity -linked securities could have the effect of substantially diluting the interests of our current stockholders.

In addition, the sale of a substantial amount of common stock or equity -linked securities in the public market, either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such common stock as consideration or by investors who acquired such common stock in a private placement, could have a material adverse effect on the market price of our common stock.

Provisions in our certificate of incorporation and by-laws may prevent or delay an acquisition of our Company, which could decrease the market value of our common stock.

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These provisions include:

a classified Board of Directors, which will be phased out over a two-year period concluding at our 2024 annual meeting of stockholders;

• limitations on the removal of directors;

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These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.

Our stockholder rights plan, or “poison pill,” includes terms and conditions that could discourage a takeover or other transaction that stockholders may consider favorable.

On June 16, 2023, our stockholders voted to ratify the adoption by our Board of Directors of the Stockholder Rights Agreement, dated March 17, 2023 and subsequently amended on May 4, 2023 and on May 10, 2023 (as amended, the “Stockholder Rights Agreement”), by and between the Company and Continental Stock Transfer & Trust Company, as Rights Agent.

The Stockholder Rights Agreement was adopted in response to stockholder activism concerns and is intended to protect the Company and its stockholders from efforts by a single stockholder or group of stockholders to obtain control of the Company without paying a control premium through a number of recognized stockholder protections.

Generally, the Stockholder Rights Agreement works by causing substantial dilution to any person or group (other than specified exempt persons) that acquires 10% (or 20% in the case of passive stockholders) or more of the shares of common stock without the approval of the Board of Directors (such person or group, an “Acquiring Person”) through the issuance of “Rights” to stockholders of record as of, and subsequent to, the close of business on March 28, 2023, which Rights entitle the registered holders thereof (other than the Acquiring Person) to receive additional shares of our common stock upon exercise of such Rights.

As a result, the overall effect of the Stockholder Rights Agreement may be to render more difficult or discourage a merger, tender or exchange offer or other business combination involving our Company that is not approved by the Board of Directors even if the offer may be considered beneficial by some stockholders.

The Rights will expire at the close of business on March 16, 2024, unless previously redeemed or exchanged by the Company.

See Note 19 to our Consolidated Financial Statements for additional information.

The payment of dividends to our stockholders and our ability to repurchase our common stock is subject to the discretion of our Board of Directors and may be limited by our financial condition and any applicable laws.

Any determination as to the payment of dividends or stock repurchases, as well as the level of such dividends or repurchases, will depend on, among other things, general economic and business conditions, our level of AUM, our strategic plans, our financial results and condition, limitations associated with new credit facilities or other agreements that could limit the amount of dividends we are permitted to pay or the stock we may repurchase, and any applicable laws.

For example, on August 16, 2022, the U.S.

government enacted the Inflation Reduction Act, which includes an excise tax that would impose a 1% surcharge on stock repurchases, which may impact our financial results beginning in fiscal year 2023.

If, as a consequence of these various limitations and restrictions, we are unable to generate sufficient income from our business, we may need to reduce or eliminate the payment of dividends on our common stock or cease repurchasing our common stock.

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Our Board of Directors could, therefore, issue preferred stock with dividend rights superior to that of the common stock, which could also limit the payment of dividends on the common stock.

UNRESOLVED STAFF COMMENTS

We have no unresolved comments from the SEC staff relating to our periodic or current reports filed with the SEC pursuant to the Exchange Act.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors