The SEC has settled charges with a faith-based robo-advisor tailored to Muslim clients that it broke the commission's marketing rules by including athletes in ads without disclosing they were compensated for the work.
New York-based Wahed Invest will pay $250,000 to settle charges with the commission. The fintech firm was launched in 2017 and focuses on ethically focused investing that is in line with Islamic teachings.
According to the agreement of the commissionWahed reported having more than 19,000 retail and high-net-worth clients in the U.S. and managing about $523.5 million in assets under management (the firm says it has more than 300,000 clients worldwide).
The commission's updates to its advertising rule took effect in May 2021, with a compliance date the following year. According to former SEC Chairman Jay Clayton, the amendments modernized “traditional advertising and inducement regimes” that had been left unchanged for decades.
In some cases, the SEC allowed firms to use testimonials and endorsements in advertising, but mandated client disclosures about whether the endorsers are clients and whether they were paid. According to the Wahed agreement, the firm did not comply with the last request.
In one case, a professional soccer player was featured in an endorsement, with text that read, “Join the 300,000+ people investing with Wahed. (The footballer) is investing, and you?” (The name of the athlete is not included in the residence.)
However, the footballer was not a client and he was paid for his appearance with shares from Wahed's parent company worth around $500,000, creating a conflict of interest for that player. According to the commission, Wahed did not disclose any of this information.
In another ad on her website, Wahed brought in four professional mixed martial arts (MMA) athletes for an ad (like the soccer player, they are not named in residence). The ad included the name of one of the athletes with messages saying, “Join the fight.” The firm also advertised with MMA fighters on social media and email, including text such as “step into the ring of financial success with Wahed in 2023.”
But the athletes were not Wahed's clients and were paid $30,000 to $50,000 a month to appear in the ads; according to the SEC, Wahed did not disclose this to clients. The firm stopped using advertising, including endorsements, last May.
The commission also accused the firm of using hypothetical performance in advertising for more than 17 months on its website without the necessary policies and procedures.
Wahed did not return requests for comment.
At the beginning of this year, SEC examiners reported they were still finding violations of the advertising rule among registrants, including advisers falsely claiming to be “free of all conflicts,” according to the third risk alert issued about the amended rules.
In September, nine RIAs agreed to collectively pay more than $1.2 million to settle SEC charges of advertising violations (some firms included Integrated Advisors Network, Rciahrd Bernstein Advisors and Abacus Planning Group).