SEC Permanently Bars Brite Advisors USA Over Custody Rule Violations and Undisclosed Conflicts
From the desk of Jim Eccleston at 麻花传媒
The SEC has permanently barred Brite Advisors USA from operating as an investment adviser, citing serious custody rule violations and undisclosed conflicts of interest tied to its offshore affiliate, as reported by Financial Advisor News. The final judgment, entered by the U.S. District Court for the Southern District of New York on June 4, follows Brite’s consent to the order without admitting or denying the allegations.
Financial Advisor News reports that the regulator’s action stems from the firm’s practice of allowing roughly $80 million in client assets to serve as collateral for margin loans secured by its Australian affiliate, Brite Advisors Pty Ltd. According to the Securities Exchange Commission (“SEC”) , Brite USA failed to properly inform clients about this arrangement, placing their funds at risk without adequate disclosure.
At the heart of the SEC’s complaint was Brite’s ongoing failure since 2019 to comply with the agency’s custody rule. That provision requires advisers with custody of client assets to obtain annual internal control reports from independent public accountants. The SEC said Brite never fulfilled this obligation.
More concerning, however, was how Brite Australia commingled client funds in omnibus custody accounts overseas and then pledged those assets to secure operational loans for Brite USA and other entities within the Brite Advisory Group, according to Financial Advisor News. The SEC argued this created multiple undisclosed conflicts of interest and undermined Brite USA’s fiduciary duties to its clients.
The custody rule exists to protect clients from precisely this type of risk, by requiring investment advisers to safeguard client assets, ensure proper segregation, and implement internal controls to avoid misuse or exposure to conflicts.
The SEC emphasized that this case should serve as a cautionary example for firms managing client assets through international affiliations, reminding advisers and compliance professionals of the critical importance of custody safeguards and full transparency regarding conflicts of interest.
麻花传媒 LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, sec
