The U.S. Securities and Exchange Commission (SEC) has settled charges against Fair Invest, LLC, a Texas-based investment advisory firm, and its sole officer Khalid Parekh for making false statements and engaging in other misconduct related to a securities offering targeting the Muslim community.
It raised around $18.5 million from about 373 investors in U.S., promising lucrative returns that were not supported by the actual investment strategy.
False Promises of Crypto Investment
Between August 2021 and August 2022, Fair Invest and Parekh offered an investment product called the Wealth Building Account (WBA). The product was marketed as compliant with Islamic law, which prohibits earning or charging interest.
Parekh targeted the Muslim community in the U.S. using a range of media outlets, including radio shows, podcasts, and interviews, to promote the WBA. He assured investors that the fund adhered to Sharia principles and promised an annual return of 4%.
However, the SEC’s investigation revealed a significant discrepancy between Parekh’s claims and the actual practices of Fair Invest. Instead of investing in equities, mutual funds, commodities, and exchange-traded funds (ETFs) as promised, Parekh used investors’ funds for crypto-lending on platforms not specified in the SEC’s announcement.
He failed to disclose that the WBA accounts were not insured by the Securities Investor Protection Corporation (SIPC), as claimed, and that the firm’s actual investments were far from the long-term, conventional assets it had represented.
Misleading Investors and Conflicts of Interest
Instead of diversifying investments into traditional assets, the firm limited investments to short-term crypto-asset lending. Parekh also had undisclosed conflicts of interest, as an affiliate of the firm retained a share of the earnings generated from these crypto-lending activities.
Moreover, Parekh had an equity interest in one of the crypto-trading platforms that was used for the crypto-lending, a fact he did not disclose to investors.
Settlement and Return of Funds
In response to this, Fair Invest decided to return the principal and promise dividends to the investors. The firm also voluntarily withdrew its registration with the SEC as an investment adviser.Â
As part of the settlement, Khalid Parekh agreed to pay a $100,000 fine for misleading his clients. The case highlights an increasing concern among regulators about the risks involved in crypto-based investments and the importance of transparency for investors.
It also underscores the need for companies offering financial products to adhere strictly to legal and ethical standards, particularly when they are targeting specific communities with culturally sensitive claims.
SEC’s Continued Scrutiny of Crypto Firms
This case is part of a broader wave of SEC scrutiny over crypto-related firms and financial products, reflecting the agency’s ongoing efforts to ensure compliance with federal securities laws.Â
Despite the end of the federal fiscal year in September 2024, the SEC continues to investigate potential misconduct within the rapidly evolving cryptocurrency market.
In this case, the SEC’s settlement ensures that the affected investors received their principal investment, along with the 4% return promised by Parekh, while serving as a reminder of the importance of diligence in financial transactions.