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HARRISBURG, Pa. – The Pennsylvania Credit Union Association is reminding credit unions to exercise due diligence reviews on safekeepers of their investments in the aftermath of the Bentley Financial Services, Inc. scandal. In 2001, the SEC obtained temporary restraining orders and asset freezes against Bentley Financial in connection with a Ponzi scheme for the sale of supposed bank-issued CDs to more than 220 investors including 103 credit unions. The CDs were in fact uninsured securities issued by the several defendants named in the SEC suit. While Bentley was registered with the SEC, the company it created to safekeep CDs, Entrust Group, was not registered, nor was it affiliated with a financial institution as required by Part 703 of NCUA’s Rules and Regulations. Safekeepers secure the custody of the credit union’s investments. “The reliability of the safekeepers’ records is essential to protecting the credit union’s ownership interest in the event the safekeeper enters bankruptcy or liquidation; and ensures the credit union can collect on deposit insurance if the CD issuer fails,” PCUA recently wrote. The due diligence review, among other things, should include: determination that approved safekeepers are regulated by the SEC or similar agency; an assessment of the reputation of the safekeepers; documentation on the capital strength of the safekeeper; the execution of a written custodial agreement with the safekeeper before any transactions can take place, making sure the agreement is institutional and not retail; and a review of monthly safekeeping statements which are reconciled to the credit union’s records. PCUA also said all federally-insured credit unions are required to perform due diligence on prospective safekeepers and review the information periodically to protect them against fraud or misconduct by any party

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