Adviser Settles Action Based on Custody Rule Violations and Conflicts
Investment advisers are heavily regulated professions. Their actions, when using investor money or assets, are covered by a number of regulations. For example, if the adviser has custody of client securities, the custody rule imposes requirements which include an obligation that the adviser periodically obtain confirmation from an independent party that the assets are under the adviser’s control or that there be an audit.
In other instances, the adviser’s fiduciary duties impose certain disclosure obligations. For example, where there is a material conflict, disclosure must be made. The point of each obligation is the same – to protect the property of the investor. Each of these obligations converged recently to become the predicate for an enforcement action, SEC v. Bright Advisors USA, Inc., Civil Action No. 26329 (S.D.N.Y.).
Defendant Bright Advisers USA, Inc. is an investment adviser that advises on nearly $400 million of client assets maintained by Bright Advisors Pty. The advisor is an Australian financial services firm under common control with Bright USA.
In 2019, Bright USA failed to comply with the custody rule requirement. Under that rule the adviser is required to obtain confirmation that the client assets are maintained. The purpose of the confirmation is to aid in safeguarding client funds and securities maintained by Bright Australia. The required confirmation was not obtained.
During the same period Bright USA is alleged to have failed to disclose a material conflict regarding use of client assets. Specifically, Bright USA breached its fiduciary duties to its clients by failing to fully disclose conflicts of interest and risks to client assets resulting from Brite Australia’s borrowing of millions of dollars using Bright USA’s client assets as collateral to provide operational funding for Bright USA and other related companies.
The Commission filed an enforcement action alleging violations of Advisers Act Section 206(2) and Rule 206(4). To resolve the matter Bright USA consented to the entry of a final judgment that permanently from violating the cited Section and Rules. A conduct based injunction was also imposed. See Lit. Rel. No. 26329 (June 17, 2025).
Adviser Settles Action Based on Custody Rule Violations and Conflicts
Investment advisers are heavily regulated professions. Their actions, when using investor money or assets, are covered by a number of regulations. For example, if the adviser has custody of client securities, the custody rule imposes requirements which include an obligation that the adviser periodically obtain confirmation from an independent party that the assets are under the adviser’s control or that there be an audit.
In other instances, the adviser’s fiduciary duties impose certain disclosure obligations. For example, where there is a material conflict, disclosure must be made. The point of each obligation is the same – to protect the property of the investor. Each of these obligations converged recently to become the predicate for an enforcement action, SEC v. Bright Advisors USA, Inc., Civil Action No. 26329 (S.D.N.Y.).
Defendant Bright Advisers USA, Inc. is an investment adviser that advises on nearly $400 million of client assets maintained by Bright Advisors Pty. The advisor is an Australian financial services firm under common control with Bright USA.
In 2019, Bright USA failed to comply with the custody rule requirement. Under that rule the adviser is required to obtain confirmation that the client assets are maintained. The purpose of the confirmation is to aid in safeguarding client funds and securities maintained by Bright Australia. The required confirmation was not obtained.
During the same period Bright USA is alleged to have failed to disclose a material conflict regarding use of client assets. Specifically, Bright USA breached its fiduciary duties to its clients by failing to fully disclose conflicts of interest and risks to client assets resulting from Brite Australia’s borrowing of millions of dollars using Bright USA’s client assets as collateral to provide operational funding for Bright USA and other related companies.
The Commission filed an enforcement action alleging violations of Advisers Act Section 206(2) and Rule 206(4). To resolve the matter Bright USA consented to the entry of a final judgment that permanently from violating the cited Section and Rules. A conduct based injunction was also imposed. See Lit. Rel. No. 26329 (June 17, 2025).