Foul! SEC Faults Investment Adviser for Inadequate Disclosures on Professional Athlete Endorsements

The Federal Trade Commission (FTC) isn’t the only regulator in town when it comes to endorsements and testimonials. The Securities and Exchange Commission (SEC) regulates investment adviser marketing under its “Marketing Rule.” The rule states that an “advertisement may not include any testimonial or endorsement, and an adviser may not provide compensation, directly or indirectly, for a testimonial or endorsement” unless accompanied by clear and prominent disclosures.

According to an SEC cease-and-desist order, Wahed Invest LLC ran afoul of the Marketing Rule when it disseminated advertisements on its public website, social media, and emails containing endorsements from several professional athletes without the required disclosures. In one instance, a soccer player was paid in stock in Wahed’s parent company, worth about $500,000, and MMA athletes were paid around $30,000 monthly for appearing in the advertisements. The endorsements included statements such as:

• Join the 300,000+ people investing with Wahed. [This professional soccer player] is investing, are you?
• Step into the ring of financial success with Wahed in 2023.
• Aim higher, start your journey to wealth.

Wahed did not disclose that the endorsements were given by people who were not current clients, that compensation was provided for the endorsements, and any material conflicts of interest resulting from an endorser’s relationship with Wahed. The SEC imposed a $250,000 civil penalty along with injunctive relief.

While investment advisers must comply with the SEC’s Marketing Rule, the FTC regulates advertising and marketing to consumers. We’ve discussed the FTC Guides on Endorsements and Testimonials as well as enforcement actions relating to false endorsements and failing to provide adequate disclosures.

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