A New York-based robo-advisor created to adhere to Islamic law has been censured and ordered to pay a $300,000 civil monetary penalty by the Securities and Exchange Commission, which said the advisory did not even adhere to its duties to rebalance client accounts.
Wahed Invest, an advisory firm with $147 million in reported assets under management and more than 15,000 clients, consented to the settlement in an SEC administrative proceeding on Thursday.
According to the SEC, Wahed Invest advertised its own Shariah-compliant proprietary funds to investors when such funds did not exist and promised to rebalance accounts periodically but never did so. The advertising campaign started in September of 2018, but the Wahed Invest proprietary exchange-traded fund was not launched until July 2019.
Shariah is law and jurisprudence founded around the tenets of Islam as established by the prophet Muhammad. It includes prohibitions on accepting interest and investing in industries like alcoholic beverages and gambling.
Wahed Invest’s ETF was seeded with clients’ advisory assets, the SEC alleged, but the company did not disclose its conflicts of interest to those clients.
The SEC also charged that while Wahed Invest held itself out as a Shariah-compliant money manager, it did not adopt and implement written policies and procedures addressing how it would ensure compliance.
The agency charged Wahed Invest with multiple violations of the Advisers Act related to fraud, truth-in-advertising and the maintenance of written compliance policies.
As part of the settlement, Wahed Invest agreed to a cease-and-desist order, to pay the $300,000 penalty, to notify investors of the agreement, and to retain an independent consultant to review the robo-advisor’s compliance policies, marketing materials, disclosures and advisory decision-making processes.