As the collapse of Lehman Brothers painfully showed, the trading and financing activities of prime brokers can pose significant risks to hedge fund managers. Rule 15c3-3 under the Securities Exchange Act of 1934, commonly known as the Customer Protection Rule, requires broker-dealers to safeguard customer cash and securities, including maintaining a sufficient amount on deposit in a segregated bank account to pay the net amount that the broker-dealer owes to its customers. Morgan Stanley & Co. LLC recently settled SEC charges that it engineered internal financing transactions with an affiliate that improperly reduced the amount of cash it was required to segregate. This article highlights the key points in the settlement order. The settlement is another reminder that hedge fund managers must always be aware of how their assets are being used by their prime brokers and other counterparties. For another recent case involving a broker’s violation of the Customer Protection Rule, see “Merrill Lynch Settlement Reminds Hedge Fund Managers to Be Aware of How Brokers Are Handling Their Assets” (Jul. 7, 2016). For additional guidance on mitigating prime brokerage risk, see “How Fund Managers Can Mitigate Prime Broker Risk: Structural Considerations of Multi-Prime or Split Custodian-Broker Arrangements (Part Two of Three)” (Dec. 8, 2016).