The SEC cancelled the adviser registration of an internet investment adviser because it never launched its website.
Kevin Ajenifuja registered his firms with the SEC by filing its Form ADV on May 28, 2015. He stated the eligibility for registration was because the firm was an “Internet Investment Adviser.”
Internet investment advisers typically are not eligible to register with the SEC. They do not manage the assets of their clients and therefore do not meet the statutory threshold for registration with the SEC. That would mean they would have to register in the states where they do business. For an internet investment adviser that would mean as a practical matter having to register in all 50 states. The SEC passed the internet adviser exception to fix this problem in 2003.
A year and a half later, in September 2016, the SEC contacted Mr. Ajenifuja because it thought he should withdraw the registration. He was still developing the website. The SEC said he should he withdraw and apparently he said he would do so.
The SEC gave notice in December 2016 that it intended to cancel the registration. Ajenifuja challenged the cancellation and had a hearing a year and half later in April 2018. He apparently still did not have an operational interactive website.
Mr. Ajenifuja argued that the internet adviser exception allows a grace period for development. In the adopting release the SEC “recognized the need for internet investment advisers to register with the Commission early in their development and testing phase in order to obtain venture capital.” Further that “many of these advisers may not even be fully operational 120 days after the registration has been granted.”
The SEC conceded that an internet adviser may be allowed some leeway beyond 120 days. However, there is no explicit grace period after the 120 days. The SEC would consider an extension based on facts and circumstances. Clearly, the SEC is looking for a firm to “reasonably expect to have a fully functional interactive website within a relatively short period” to prevent de-registration.
This decision may be the first time that SEC has said that internet advisers may get more than 120 days to launch so long as they can demonstrate significant progress.
Unfortunately for Mr. Ajenifuja, the SEC found that three years was too long to still not have an operational website.
Sources:
- SEC Cancels Internet RIA Registration for Failure to Launch
- Notice of Intention to Cancel
- Ajenifuja Investments, LLC; Order Cancelling Registration Pursuant to Section 203(h) of the Investment Advisers Act of 1940
- Exemption for Certain Investment Advisers Operating Through the Internet Release No. IA-2091