Following a spate of alleged Ponzi schemes and two dozen recent enforcement actions involving the misuse of client funds, the SEC has proposed amendments to custody rules to increase scrutiny and accountability of money managers.  The most significant of the proposed changes would require all registered investment advisers who have any kind of custody of client assets to undergo a surprise examination by an independent public accountant once per year to verify the existence and proper treatment of the funds.  The rigor and reporting requirements would differ depending on whether investment advisers place client funds with affiliated or unaffiliated custodians.  As a companion piece to our article describing the proposed amendments to the custody rules (above, in this issue of the Hedge Fund Law Report), we offer reactions from industry participants to the proposed amendments, and discuss the potential impact of the amendments on unregistered hedge fund managers.