ALEXANDRIA, Va. – Citing the most recent case of substantial losses many credit unions faced with Bentley Financial Services, a defunct broker, NCUA issued another advisory reiterating the critical need for due diligence in safekeeping investments, particularly with certificates of deposits. 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 defendants named in a SEC suit. More than $370 million worth of bogus CDs were sold to credit unions, banks and individual investors. Since February, nearly $296 million has been returned back to investors, according to David Marion, the court-appointed receiver. In an April letter to credit unions, NCUA Chairman Dennis Dollar said Bentley Financial created the Entrust Group to safekeep CDs for investors but the firm was not registered with the SEC and was not affiliated with a financial institution as is required for federal credit unions under Part 703 of NCUA Rules and Regulations. “As a result, credit unions with Bentley-related investments incurred losses that may have been avoided had proper due diligence reviews been performed,” Dollar wrote. The accuracy and reliability of the safekeeper's records are critical, serving to protect ownership interest in the event the safekeeper enters bankruptcy or liquidation and ensures the credit union can collect on deposit insurance in the event the CD issuer fails, Dollar wrote. A due diligence review should also include a determination that approved safekeepers are regulated by the SEC, or a federal or state depository institution regulatory agency such as the Federal Deposit Insurance Corp., or a state trust company regulatory agency; an assessment of the reputation of the safekeepers including tracking positive and negative publicity; documentation of the capital strength of the safekeeper, which should show it having “substantially more capital than the amount of investments it holds for that credit union.” A safekeeper regulated by a depository institution or state trust regulatory agency must file financial reports that are publicly available. In addition, the SEC requires every registered broker-dealer to send to its customers its certified balance sheet on an annual basis. Credit unions can access public financial information for banks at www.fdic.gov, and for credit unions at www.ncua.gov. Information regarding broker-dealers can be accessed at www.sec.gov and www.nasdr.com. Dollar also advised the execution of a written custodial agreement with the safekeeper before any transactions take place, making sure that credit unions make certain that it entersinto an “institutional” agreement and not a “retail” agreement. “Retail agreements may allow the custodian to use the retail customer's securities for activities such as securities lending transactions without notification of the retail customer and are not appropriate for credit unions,” Dollar wrote. “A simple way to differentiate a retail agreement from an institutional one is that a retail agreement generally will not include a signature block for signing on the behalf of a company or organization.” [email protected]