SEC Charges Registered Investment Adviser with Failing to Disclose Incentive Fees Received from Clearing Firm

ADMINISTRATIVE PROCEEDING
File No. 3-22157

September 23, 2024 – The Securities and Exchange Commission today announced settled charges against Brighton Securities Corp., a dually registered investment adviser and broker-dealer, for failing to disclose to its advisory clients a conflict of interest created by incentive fees that Brighton received from its clearing firm.

According to the SEC’s order, Brighton renegotiated its clearing agreement and pricing schedule with its clearing firm in 2020.  The SEC’s order finds that such agreement includes several incentives for Brighton to use that clearing firm’s services, such as a $500,000 Relationship Extension Award, a monthly Client in Good Standing credit in amounts between $15,000 and $25,000, a termination fee on a sliding scale ranging from $500,000 to $100,000 if Brighton were to terminate the agreement before August 31, 2025, and a Minimum Monthly Clearing Fee that imposes additional fees should Brighton not utilize at least $10,000 in clearing and execution services each month.

As set forth in the order, Brighton did not disclose these incentives to its advisory clients and prospective clients until June 2022, when it revised its Firm Brochure for Part 2A of the Form ADV. According to the SEC’s order, by that point, Brighton had received approximately $1 million from the Relationship Extension Award and Client in Good Standing credits. The SEC’s order further finds that a Brighton affiliate failed to make similar disclosures in its own Firm Brochure until March 2024. That affiliate has since ceased operations.

The SEC’s Order finds that Brighton willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, and Rule 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, Brighton consented to a cease-and-desist order and a censure and agreed to pay a civil penalty of $175,000.

The SEC’s investigation was conducted by Stewart Gilson and Adam Grace, under the supervision of Thomas P. Smith, Jr., all of the New York Regional Office.