SEC Division of Investment Management staff letter: Investment Adviser Association

September 20, 2007
Our Ref. No. 20072131442
Investment Adviser
RESPONSE OF THE OFFICE OF CHIEF COUNSEL Association DIVISION OF INVESTMENT MANAGEMENT File No.132-3 Your letter dated September 20, 2007 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the “Commission”) under Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-2 thereunder (“Custody Rule”) against any investment adviser (“adviser”) that promptly forwards, to its client or a qualified custodian, certain client funds or securities (together, “client assets”) that the adviser inadvertently receives in the situations and under the circumstances discussed below.
I. Facts
In your letter, you explain that your member advisers1 from time to time receive certain client assets from non-clients. Specifically, you state that some advisers:
(1) provide administrative services to their clients in connection with tax filings made with the Internal Revenue Service, state and other governmental taxing authorities (together, “Tax Authorities”); those services include completing tax forms and filing them with the Tax Authorities. You state that the Tax Authorities sometimes send client tax refunds to the adviser’s address; (2) file proofs of claim for their clients and complete other documentation related to class action lawsuits and other legal actions. You state that the administrators of funds established to distribute the settlement proceeds of these actions (“administrators”)2 sometimes send client settlement assets to the advisers; and