Wahed Invest, a pioneering robo-adviser in the Islamic finance space, has been charged by the US regulator with “making misleading statements and breaching its fiduciary duty, and for compliance failures related to its Shariah advisory business”, resulting in a US$300,000 fine.
In an official statement, the Securities and Exchange Commission (SEC) said that 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. Further to that, the regulator also found that when the Islamic robo-adviser launched a proprietary exchange-traded fund (ETF) in July 2019, it used its clients’ advisory assets to seed the ETF without prior disclosure to clients of any conflicts of interest.
Wahed Invest also failed to adopt and implement written policies and procedures addressing how it would assure compliance with Shariah law 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, the 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.”
It is revealed that the fintech company 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,” noted the regulator.
Who is Wahed Invest?
Founded in 2015 in New York by Junaid Wahedna, Wahed Invest grabbed headlines and attracted over US$40 million in funding by investors across the globe as the first automated Halal investment platform in the world. Backers included the likes of Saudi oil giant Aramco’s venture capital arm and other Middle Eastern investors such as Dubai Cultiv8, BECO Capital and CueBall Capital.
The firm became one of the fastest-growing Islamic fintech start-ups gaining licenses in Bahrain, Malaysia, the UK, Nigeria and Saudi Arabia among others and building a global client base of over 200,000.