The Securities and Exchange Commission has ordered Wahed Invest LLC, a Shariah-based robo-advisor, to pay a $250,000 civil money penalty for disseminating ads on its website, on social media and in emails containing endorsements from several professional athletes that failed to provide the disclosures required under the Marketing Rule.
After the Marketing Rule's compliance deadline of Nov. 4, 2022, through May 2024, Wahed also disseminated ads on its public website that presented hypothetical, back-tested performance without adopting and implementing required policies and procedures designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of the intended audience.
On a Form ADV dated March 22, 2024, Wahed reported that it had more than 19,000 retail and high-net-worth clients and about $523.5 million in regulatory assets under management.
During the relevant period, Wahed's communications constituted advertisements "because they offered Wahed's investment advisory services with regard to securities to prospective clients and offered new investment advisory services with regard to securities to current clients," the SEC's order states.
"As the communications were published on Wahed's public website, they were made to more than one person," the SEC said.
Wahed communications also depicted "non-client professional athletes that constituted advertisements because they included paid endorsements from those athletes," according to the order.
The firm disseminated multiple ads on its website and via its social media accounts and email that contained endorsements "that did not disclose that the endorsements were given by persons other than a current client, that compensation was provided for the endorsements, and any material conflicts of interest resulting from an endorser's relationship with Wahed," the order states.
For instance, the firm "included an endorsement from a professional soccer player displaying the individual's image and text that read, 'Join the 300,000+ people investing with Wahed. [This professional soccer player] is investing, are you?'"
"However, in reality, the soccer player was not a client and had been compensated for his appearance in the advertisement with stock in Wahed's parent, Wahed Inc., worth approximately $500,000," according to the order.
