Wahed Invest Charged by SEC for Misleading Clients and Shariah Compliance Failures
by Fintech News Malaysia February 11, 2022Wahed Invest was charged on Thursday by The Securities Exchange Commission (SEC) in the US for making misleading statements, breaching its fiduciary duty, and for compliance failures related to its Shariah 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 shariah laws, 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 shariah compliance on an ongoing basis.
“Robo-advisors, like other advisors, must ensure that their marketing materials are not misleading and that conflicts are disclosed to investors,”
“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.”
said Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.
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.
Wahed Invest obtained regulatory approval to provide robo-advisory services in Malaysia by the Securities Commission Malaysia (SC) in October 2019. It was the 3rd to receive the nod from SC and the first Islamic robo-advisor in Malaysia.
