The US Securities and Exchange Commission (SEC) has filed charges against Wahed Invest, a “robo-advisor,” for “misleading statements and breaching its fiduciary duty, and for compliance failures.” Wahed has consented to the, without admitting or denying the SEC’s findings, while paying a penalty.
Wahed Invest was founded in the US but has since expanded into multiple countries around the world.
According to the SEC, from September 2018 through July 2019, Wahed Invest advertised the existence of its own proprietary funds when no such funds existed, and also promised investors that it would periodically rebalance their advisory accounts, but did not do so.
The SEC’s order also finds that when Wahed Invest launched a proprietary ETF in July 2019, it used its clients’ advisory assets to seed the ETF without prior disclosure to clients of any conflicts of interest.
The order also finds that Wahed Invest marketed itself as providing advisory services compliant with Islamic, or Shari’ah law. Despite these representations, the order finds that Wahed Invest did not adopt and implement written policies and procedures addressing how it would assure Shari’ah compliance on an ongoing basis.
“Robo-advisers, like other advisers, must ensure that their marketing materials are not misleading and that conflicts are disclosed to investors,” stated Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Registered investment advisers like Wahed Invest must also adopt and implement written policies and procedures reasonably designed to prevent the adviser from deviating from its claimed investment process.”
Wahed Invest consented to the entry of the SEC’s order finding that the firm violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-1(a) and 206(4)-7. Without admitting or denying the SEC’s findings, Wahed Invest agreed to a cease-and-desist order, to pay a $300,000 penalty, and to retain an independent compliance consultant among other undertakings.