by T. GormanPosted on Posted in SECActions

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).

 

Tagged with: ,

by T. GormanPosted on Posted in SECActions

Offering fraud cases are typically the largest category of action initiated by the Commission. While the cases involve a wide variety of schemes to attract investors, they all have common threads. Those typically focus on an offering that is attractive to the group targeted, key assurances to investors such as an assurance that their funds will only be used for the particular project and that the profits will be made relatively quickly. While there are numerous other elements in each case, the three identified are typical. Each is reflected in the Commission’s most recent case in the area, SEC v. Scalise, Civil Action No. 2:25-cv-03088 (E.D. Pa. Filed June 17, 2025). </p>

Named as defendants in this action are: Peter Scalise III and The3rdBevco Inc. Mr. Scalise is the founder and largest shareholder of the company. He is also the CEO, President, Principal Accounting Financial Officer and sole member of the board of directors. The company, founded in October 2019, has had one employee during most of its existence – Mr. Scalise. The firm does not have any securities registered under the Exchange Act.

Over a five-year period, beginning in 2019, Mr. Scalise and The3dBevco have brought in about $3.6 million. Investors were told that the firm was in the beverage business. Key to the business was Individual 1, a person who would potentially collaborate on a claimed rum alcohol product. Individual 1 supposedly had a famous name, an image, a trademark and music that would be important to building the beverage business potential investors were told.

Potential investors were told that Individual 1 was a “Global Superstar and Music Icon.” It was Individual 1 who apparently facilitated raising about $3.6 million for the firm. Negotiations were supposedly underway with Individual 1’s brother for a deal.

Defendants were able to raise funds by selling unregistered securities in the firm. At the same time, after five years of work and marketing beverages, it was the investor funds that kept the company going.

The company and its investors had little to show for their investment. Much of the investor funds were actually transferred to family member bank accounts while payments from the company benefitted largely Mr. Scalise who took far more out of the firm than his share. Indeed, he misappropriated substantial portions of the investor funds to pay for a variety of expenses. While the offing of shares was supposedly under Reg A, its limitations were not followed. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 10(b) and Rule 10b-5.

Defendants resolved the matter. Under the terms of the settlement each Defendant was permanently enjoined based on the Sections cited in the complaint. In addition, each will pay, on a joint and several basis, disgorgement of $856,461 plus prejudgment interest of $34,677. In addition, Mr. Scalise will pay a penalty of $236,451. He is also prohibited from participating in the offer or sale of securities except for his personal account. An officer/director bar and a penny stock bar were also imposed. The judgments have not been approved by the court. See Lit. Rel. No. 26328 (June 17, 2025).

Tagged with: ,