Question: If an adviser inadvertently receives securities from a client, under the amended rule may the adviser forward the securities to the qualified custodian instead of returning the securities to the client?

Answer: No. If the adviser does not return the securities to the sender within three business days, the adviser not only has custody but has also violated the amended rule’s requirement that client securities be maintained in an account with a qualified custodian. However, the Division would not recommend enforcement action to the Commission under certain circumstances if an adviser inadvertently receives tax refunds from tax authorities, or client settlement proceeds from administrators in connection with class action lawsuits and other legal actions, or stock certificates, dividends, or evidence of new debt from issuers in connection with class action lawsuits involving bankruptcy or business reorganization, and forwards these client assets within five business days of its receipt and maintains appropriate records.

This entry was posted on Thursday, March 18th, 2010 at 7:20 am and is filed under Custody. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.