The 2008 collapse of Lehman Brothers highlighted the significant risk to hedge fund managers from the collapse of a prime broker or significant counterparty. See “Lesson From Lehman Brothers for Hedge Fund Managers: The Effect of a Bankruptcy Filing on the Value of the Debtor’s Derivative Book” (Jul. 12, 2012); and “How Can Hedge Funds Get Their Money Out of Lehman Brothers International Europe?” (Aug. 5, 2009). In theory, client funds in the hands of a broker-dealer should be sacrosanct. Specifically, Rule 15c3-3 under the Securities Exchange Act of 1934 (Exchange Act), commonly known as the Customer Protection Rule (Rule), requires broker-dealers to segregate the net cash owed to their clients and to safeguard client securities. A recent SEC settlement order indicates that two Merrill Lynch entities failed on both counts, engineering riskless “leveraged conversion trades” that artificially created client margin account balances that they could net against the cash they were required to reserve for clients and subjecting tens of billions in client securities to a clearing bank’s lien. Separately, in a move that echoes the SEC’s focus on private fund CCO liability, the SEC has commenced an enforcement action against William Tirrell, the Merrill Lynch executive responsible for compliance with the Rule. See “SEC Enforcement Director Assures CCOs They Need Not Fear SEC Action Absent Wrongdoing” (Nov. 19, 2015). The settlement is a reminder that fund managers must be cognizant of how prime brokers and other counterparties may be using their assets. This article summarizes the key elements of the Merrill Lynch settlement and the related action against Tirrell. See also “Factors to Be Considered by a Hedge Fund Manager When Selecting a Prime Broker” (Dec. 4, 2014).