The custodian requirements work by cutting off the operational mechanics of Ponzi finance: they curtail an adviser's ability to pay existing investors with money invested by new investors, and custodians may execute client trades but cannot remit sales proceeds to the adviser or to third parties.
Source quote, verbatim
The custodian requirements under the Dodd-Frank Act curtail investment advisers' ability to pay existing investors with the funds invested by new investors.
Wulf A. Kaal, Investment Adviser Regulation (2013). SSRN: https://ssrn.com/abstract=2337268
Holds when
client assets held through qualified custodians under the Dodd-Frank custody rules
Classification
mechanismsupport: argueddefi
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