The Securities and Exchange Commission charged New York-based robo-adviser Wahed Invest, LLC with making misleading statements and breaching its fiduciary duty, and for compliance failures related to its Shari’ah advisory business.
According to the SEC’s order, 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 further finds that when Wahed Invest ultimately 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, including marketing the importance of its income purification process on its website. 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,” said 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.
The SEC’s investigation was conducted by David H. Tutor, with assistance from industry expert Dan Pines, and was supervised by Andrew Dean, all of the Enforcement Division’s Asset Management Unit. The examination that led to the investigation was conducted by Alessandra Hagemann, Michael Artus, Joy Best, Rachel Lavery, and Jennifer Klein of the SEC’s New York Regional Office.