The Securities And Exchange Commission of the United States (US SEC) has charged robo advisor Wahed Invest for multiple violations. These include making misleading statements, breaching its fiduciary duty, and failing to comply with written policies and procedures related to its shariah advisory business.

In detailing its charges, the US SEC said that the New York-based Wahed Invest had advertised the existence of its own proprietary funds when such funds do not exist. According to the litigation document, it clarified that the robo advisor had posted about the existence of two non-existent funds – the Wahed S&P Shariah Fund and the Wahed S&P Dividend Growth Fund – in its social media sometime between 2018 to 2019.

Additionally, the US SEC said that although Wahed Invest had promised investors to periodically rebalance their advisory accounts, it did not do so.

“The SEC’s order further finds that when Wahed Invest ultimately launched a proprietary exchange-traded fund (ETF) in July 2019, it used its clients’ advisory asset to seed the ETF without prior disclosure to clients of any conflicts of interest,” the commission noted. The ETF in reference is the Wahed FTSE USA Shariah ETF (HLAL), which is also offered to its Malaysian investors.

On top of these charges, the US SEC remarked that the robo advisor also failed to adopt and implement written policies and procedures that would assure shariah compliance on an ongoing basis. In its marketing materials and website, Wahed Invest had projected itself as an investment company that is compliant with Islamic laws, placing emphasis on its income purification process.

The co-chief of the SEC Enforcement Division’s Asset Management Unit, Adam S. Aderton stressed that robo advisors – like any other advisors – must ensure the accuracy of their marketing materials, and disclose conflicts to their investors. “Registered investment advisors like Wahed Invest must also adopt and implement written policies and procedures reasonably designed to prevent the advisor from deviating from its claimed investment process,” he said.

In response, Wahed Invest agreed to a cease-and-desist order, to pay a penalty of US$300,000, and to retain an independent compliance consultant among other undertakings.

Locally, the senior vice president of the Business Operations team for Wahed Malaysia, Syakir Hashim responded to the incident by stressing that the charges were only relevant to Wahed Invest in the US. Other Wahed branches operating in other countries – such as in Malaysia – are not implicated. He also explained that Wahed Malaysia has its own shariah advisor that ensures its compliance to shariah laws.

Wahed Malaysia is one of the eight digital investment managers that have been approved by Securities Commission Malaysia (SC), obtaining its licence in 2019. It is the first shariah-compliant robo advisor in Malaysia.

(Sources: US Securities And Exchange Commission [1, 2], Wahed Malaysia)

• TAGS:
• Adam S. Aderton
• Robo-Advisors
• Securities And Exchange Commission of the United States (US SEC)
• Securities Commission Malaysia
• Syakir Hashim
• Wahed Invest