The SEC has settled charges with a faith-based robo advisor tailored for Muslim clients for breaking the commission’s marketing rule by including athletes in advertisements without disclosing they were compensated for the work.
New York-headquartered Wahed Invest will pay $250,000 to settle the charges with the commission. The fintech firm launched in 2017 and focuses on ethically focused investing that is compliant with Islamic teachings.
According to the commission’s settlement, Wahed reported having more than 19,000 retail and high-net-worth clients in the U.S. and managing about $523.5 million in managed assets (the firm states that it has more than 300,000 clients worldwide).
The commission’s updates to its ad rule went into effect in May 2021, with the compliance date the following year. According to former SEC Chair Jay Clayton, the amendments modernized the “traditional advertising and solicitation regimes” that had been left unchanged for decades.
In some cases, the SEC allowed firms to use testimonials and endorsements in ads but mandated client disclosures on whether endorsers are clients and if they’ve been paid. According to the Wahed settlement, the firm fell short of the latter demand.
In one case, a pro soccer player appeared in an endorsement, with the text reading, “Join the 300,000+ people investing with Wahed. (The soccer player) is investing, are you?” (The name of the athlete is not included in the settlement.)
However, the soccer player wasn’t a client, and he was paid for his appearance with stock from Wahed’s parent company worth about $500,000, creating a conflict of interest for that player. According to the commission, Wahed didn’t disclose any of this information.
In another ad on its website, Wahed brought in four professional mixed martial arts (MMA) athletes for an ad (like the soccer player, they’re not named in the settlement). The ad included the name of one of the athletes with texting, saying, “Join the fight.” The firm also advertised with the MMA fighters on social media and email, including text like “step into the ring of financial success with Wahed in 2023.”
But the athletes weren’t Wahed clients and were paid between $30,000 and $50,000 per month to appear in the ads; according to the SEC, Wahed didn’t disclose this to clients. The firm stopped using advertisements, including endorsements, last May.
The commission also accused the firm of using hypothetical performance in ads for more than 17 months on its website without the necessary policies and procedures.
Wahed didn’t return requests for comment.
Earlier this year, SEC examiners reported they were still finding violations of the ad rule among registrants, including advisors falsely claiming they were “free of all conflicts,” according to the third risk alert released related to the amended rules.
In September, nine RIAs agreed to collectively pay more than $1.2 million to settle SEC charges of ad rule violations (some firms included Integrated Advisors Network, Rciahrd Bernstein Advisors and Abacus Planning Group).