Sec.36b-31-5b. Custody or possession of client funds or securities

(a) It shall constitute a fraudulent, deceptive or misleading act, practice or course of business for any investment adviser having custody or possession of funds or securities in which any client has any beneficial interest, to take any action, directly or indirectly, with respect to any such funds or securities, unless:

(1) All such securities of each such client are segregated, marked to identify the particular client who has the beneficial interest therein, and held in safekeeping in some place reasonably free from risk of destruction or other loss;

(2) (A) All such funds of such clients are deposited in one or more bank accounts which contain only clients' funds; (B) such account or accounts are maintained in the name of the investment adviser as agent or trustee for such clients; and (C) the investment adviser maintains a separate record for each such account which shows the name and address of the bank where such account is maintained, the dates and amounts of deposits in and withdrawals from such account, and the exact amount of each client's beneficial interest in such account;

(3) Such investment adviser, immediately after accepting custody or possession of such funds or securities from any client, notifies such client in writing of the place and manner in which such funds and securities shall be maintained, and thereafter, if and when there is any change in the place or manner in which such funds or securities are being maintained, gives each such client written notice thereof;

(4) Such investment adviser sends to each client, not less frequently than once every three months, an itemized statement showing the funds and securities in the custody or possession of the investment adviser at the end of such period, and all debits, credits and transactions in such client's account during such period; and

(5) All such funds and securities of clients are verified by actual examination at least once during each calendar year by an independent public accountant at a time which shall be chosen by such accountant without prior notice to the investment adviser. A certificate of such accountant stating that he or she has made an examination of such funds and securities, and describing the nature and extent of such examination, shall be filed with the commissioner promptly after the examination.

(b) This section shall not apply to an investment adviser also registered as a broker-dealer under Section 15 of the Securities Exchange Act of 1934 if such broker-dealer is (1) subject to and in compliance with Securities and Exchange Commission Rule 15c3-1, 17 C.F.R. § 240.15c3-1 or (2) a member of an exchange whose members are exempt from Rule 15c3-1 under paragraph (b) (2) thereof, and the broker-dealer is in compliance with all rules and settled practices of the exchange imposing requirements as to financial responsibility and the segregation of funds or securities carried for the account of customers.

(Effective August 22, 1994; TransferredJuly 3, 1995)