SEC accuses Fair Invest of illegally investing client funds in cryptocurrency

What’s new? The US Securities and Exchange Commission (SEC) has charged investment adviser Khalid Parekh and his solely managed firm Fair Invest with fraud for undisclosed use of investor funds for crypto investments and misappropriation of profits. With false claims, the company raised $18,5 million from members of the Muslim community.

Press release

What else is known? Fair Invest, where Parekh is listed as the sole officer, offered a Wealth Building Account (WBA) investment product that allegedly complied with Islamic prohibitions on receiving or charging interest. Between August 2021 and August 2022, the firm sold the WBA to 373 investors in 40 states, promising annual dividends of up to 4%.

It was alleged that the firm made long-term investments in stocks, exchange-traded funds (ETFs), mutual funds, and commodities, generating profits to pay dividends.

Fair Invest also falsely claimed that WBA accounts were insured by the Securities Investor Protection Corporation (SIPC) and that investments would be customized to meet the financial needs and goals of individual clients.

In reality, Fair Invest placed clients’ funds for a short period on two crypto lending platforms, the names of which were not disclosed, and pocketed a portion of the profits from the transactions. Moreover, Parekh owns a stake in one of these platforms, creating a conflict of interest that was also not disclosed to investors.

As part of the civil action, the SEC filed a number of charges alleging violations of the securities and investment advisor laws.

The defendant neither denied nor admitted the charges, but returned principal with dividends to investors, revoked its registration with the SEC as an investment advisor, and agreed to pay a $100 000 fine.

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The SEC previously accused investment firm Galois Capital of improperly holding crypto assets for clients. Half of the funds were lost because they were stored on the fraudulent crypto exchange FTX, which collapsed two years ago. Galois agreed to settle the claims with a payment of $225 000.