Global advisory group accused of fund misappropriation

It is “highly likely” that global advisory group Brite Advisors misappropriated client funds for its own purposes, the Federal Court has heard, as receivers examine the variance of US$69 million ($100 million) in its accounts.

The firm provides advisory, pension administration and asset management services to clients in Australia, the UK, the US, Switzerland and Hong Kong, and also offers an investment platform to self-invested personal pension providers and self-managed super funds (SMSFs).

ASIC commenced a court action against Brite in October 2023 to freeze its assets as it was concerned the firm’s financial position had not been disclosed to ASIC despite the firm holding an Australian financial services licence (AFSL). 

While Brite subsequently disclosed its financial statement on 2 November 2023, ASIC said the information provided “did not satisfy ASIC’s concerns”.  

Further investigation was needed, ASIC said, as investigative accountants found a $100 million difference between the total amount of client funds which the investigative accountants had been able to identify in the bank and trading accounts of Brite compared to the total amount of client funds they could see from the books and records of Brite reported to clients as being owed to them.

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Two corporate receivers were appointed from McGrathNicol in December 2023, and their report was shared with the Federal Court on 6 February 2024. 

ASIC barrister Jonathon Moore KC told the court Brite “withdrew funds for every requirement and for any amount required at any point in time”.

The report produced by the receivers was “extremely concerning” and demonstrated numerous failures on the part of Brite. It was likely, Moore said, that Brite had been misleading pension beneficiaries since August 2023 and been insolvent since October 2023, but the failure of Brite to maintain proper books and records meant that was difficult to determine. 

Its Hong-Kong based director, John Lymer, was also criticised for his failure to explain the variance in accounts when giving evidence. It is alleged large sums of money were transferred to Hong Kong for “segregation purposes”, but Brite was unable to tell the receivers which clients were segregated.

“[Lymer] gave highly unsatisfactory evidence and was utterly unable to explain how the variance came about. He attempted to explain it on the basis of investment being out of the market as they were transferred to Hong Kong, that was irrational and completely unsupported by any documents or evidence.”

Requesting that Brite be wound up, Moore concluded: “There is a justifiable lack of confidence in the conduct and management of the company’s affairs and a risk to the public that warrants protection is plainly enlivened and the facts make this an overwhelming case which the directors do not appear in the court to oppose Brite being wound up.

“There is clear evidence of misappropriation of client funds, a complete failure of Brite directors to explain the variance of $69 million, an obvious failure to maintain proper books and records, and there is likely insolvency. There is some misleading conduct towards beneficiaries and dishonest statements to regulators, auditors and the court itself about the $69 million variance.”

The court ordered that Brite Advisors be wound up on just and equitable grounds with McGrathNicol receivers Linda Smith and Robert Kirman appointed as liquidators and asset preservation orders obtained by ASIC in October 2023 to be continued.

Regarding costs of the receiver and liquidator if the company is wound up, Justice Patrick O’Sullivan concluded they should be paid from trust assets. 

“The reality is there is a huge amount of money at stake, a number of beneficiaries whose retirement savings are at risk. 

“I am conscious of the concerns of beneficiaries about why trust assets are being used to pay receivers and liquidators. If they are going to be protected, then that comes at a cost, and the cost is miniscule. Those costs may at some stage be able to be recovered from other parties and returned to beneficiaries, but without those orders, the liquidators and receivers would be justified in taking that appointment and the beneficiaries would remain unprotected.”