On November 19, 2015, the SEC announced that it had settled enforcement proceedings against registered investment adviser Sands Brothers Asset Management, LLC (SBAM) and its principals: Martin Sands, Steven Sands and Christopher Kelly, in connection with SBAM’s repeated violations of SEC Rule 206(4)-2, commonly referred to as the “custody rule.” The SEC alleged that, despite previously settling with the SEC for custody rule infractions, the respondents continued to violate the custody rule.  In the press release announcing the settlement, Andrew M. Calamari, the Director of the SEC’s New York office, cautioned, “There is no place for recidivism in the securities markets.  The Sands brothers missed their opportunity to right a previous wrong and instead merely repeated their custody rule violations, so now they face more severe consequences.”  This article summarizes the SEC’s allegations; the current and prior violations; and the details of those consequences, which include stiff penalties, suspensions and potential daily fines for custody rule violations.  For more on the custody rule, see “How Does the Custody Rule Apply to Special Purpose Vehicles Used by Private Equity Funds to Purchase, and Escrow Accounts Used to Sell, Portfolio Companies?,” Hedge Fund Law Report, Vol. 7, No. 28 (Jul. 24, 2014); “Implications for Private Fund Managers of the SEC’s Recent Custody Rule Guidance and Relief Relating to ‘Privately Offered Securities’,” Hedge Fund Law Report, Vol. 6, No. 32 (Aug. 15, 2013); and “How Does the SEC Approach Custody Issues in the Course of Examinations of Hedge Fund Managers?,” Hedge Fund Law Report, Vol. 5, No. 18 (May 3, 2012).