The U.S. Securities and Exchange Commission has charged roboadvisor Wahed Invest of moving more than $13 million in client assets into an in-house ETF without proper prior notice.
Regulators on Thursday alleged that Wahed, which offers investing compliant with Islamic laws, moved approximately $13 million invested in client accounts into the Wahed FTSE USA Shariah ETF (HLAL) as seed capital before the fund launched in July 2019. The fund replaced the equity holdings within the portfolio of several investors with shares in HLAL.
Wahed allegedly failed to disclose to investors prior to the transfer that the moves to the ETF would help seed the launch, and didn’t email clients about the change until August 2019.
The SEC also alleged that Wahed falsely offered access to two Shariah-compliant S&P 500 and S&P high-dividend indexes between September 2018 and July 2019, but did not control those indexes or have registered funds tracking them. Rather, investor assets were allegedly used to directly buy the equities in the index.
Wahed agreed to pay a $300,000 fine to the Commission without confirming or denying the SEC’s findings and agreed to hire an outside consultant to review the firm’s policies.
Wahed has two ETFs with just shy of $200 million in assets under management as of February 9, 2022. The firm did not immediately respond to a request for comment Thursday evening.
Editor's Note: A previous version of this story stated that Wahed did not alert clients that they would pay the 50 basis point expense ratio for HLAL on top of the 49 basis point wrap fee for their accounts. While the SEC said Wahed did not disclose that the firm "would recieve additional fees from certain client accounts after the transition to the Wahed ETF" from some clients because of the difference between HLAL's fees and the account wrap fee, the expense ratio for HLAL was waived when included in a client account and was not an additional charge. ETF.com regrets the error.