The SEC cancelled the adviser registration of a purported internet investment adviser because the registrant failed to launch its website in the three years since registering. The registrant filed as an RIA under the internet adviser exception whereby an adviser without assets under management is eligible to register if the adviser provides advice exclusively through an interactive website. The adviser registered in May 2015 and still has not launched its website due to personal events and product complexity. The registrant argued that the internet adviser exception allows a grace period for development. The SEC concedes that an internet adviser may be allowed some leeway beyond 120 days (the stated time period for new advisers), but three years is “well over any reasonable grace period.” Additionally, the SEC places the burden on the adviser to demonstrate “substantial efforts and progress toward developing an interactive website” in order for the Commission to exercise discretion to allow registration beyond the initial 120-day period.
This decision states for the first time that internet advisers may get more than 120 days to launch so long as they can demonstrate significant progress. The SEC will grant a grace period, but three years is too long.