The US Securities and Exchange Commission filed charges on 21 November against "Brite Advisors USA, Inc. (f/k/a deVere USA, Inc.)" for failing to comply with its requirements for "safekeeping of client assets" and for "failing to disclose material risks and conflicts of interest associated with Brite USA's recommendations to clients to use a related firm in Australia as a custodian".
International Investment reported last month that the Australian Securities and Investments Commission said on 27 October it had obtained interim orders from the Federal Court freezing the funds and assets of Australian Financial Services licensee Brite Advisors Pty Ltd (Brite). ASIC said the order was made because it was "concerned that the current financial position of Brite is unknown, as Brite has failed to lodge with ASIC its financial statements and auditors report for the financial year ended 30 June 2022".
New York-based Brite USA has been registered with the SEC as an investment adviser since 2013.
The SEC said in its statement on 21 November that its complaint, filed in United States District Court for the Southern District of New York, alleges that Brite USA advises nearly $400m of client assets maintained by Brite Advisors Pty Ltd. ('Brite Australia'), an Australian financial services company under common control with Brite USA.
Registered investment advisers that have custody of client assets are subject to the "custody rule," which requires that if a related person maintains client funds or securities, the investment adviser must obtain an internal control report as to the safeguarding of client funds and securities.
The SEC alleges that since 2019, when Brite USA began having a related firm, Brite Australia, maintain its clients' assets, it failed to comply with the SEC's custody rule.
In addition, the SEC's complaint alleges that Brite USA breached its fiduciary duties to its clients by failing to fully and fairly disclose the material risks and conflicts of interest resulting from Brite Australia's use of clients' assets.
According to the SEC's complaint, Brite Australia borrowed millions of dollars using client assets as collateral to provide operational funding to Brite USA and other related companies.
For these alleged violations, the SEC's complaint charges Brite USA with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder and seeks permanent injunctive relief and civil monetary penalties.
The SEC's investigation was conducted by Jonathan Grant, Daphne Downes, and Wendy Tepperman, and was supervised by Sheldon L. Pollock of the New York Regional Office.
The SEC's litigation will be led by Travis Hill of the New York Regional Office.
The SEC further stated that it "appreciates the assistance of the Australian Securities and Investments Commission, the United Kingdom Financial Conduct Authority and the Gibraltar Financial Services Commission".
International Investment has contacted Brite Advisors for a comment.
