SEC Charges Investment Adviser for Custody Rule Violations

ADMINISTRATIVE PROCEEDING
File No. 3-22500

August 1, 2025 – The Securities and Exchange Commission today announced settled charges against registered investment adviser Munakata Associates LLC for failing to comply with the independent verification requirement for client funds and securities over which it had custody.

According to the SEC's order, from at least 2018 through 2024, Munakata Associates’ president served as a co-trustee of two trusts that were the firm’s advisory clients; had signatory authority on four of the firm’s clients’ accounts; and acted as an authorized agent with power of attorney on five of the firm’s clients’ accounts. As a result, according to the order, the firm had custody of client funds and securities and was required to obtain surprise examinations in accordance with Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder, commonly referred to as the “Custody Rule.” From 2018 through 2024, however, the firm did not arrange for the required surprise examinations for the client accounts.

The order charges Munakata Associates with violating the Custody Rule. Without admitting or denying the findings, the firm consented to a cease-and-desist order and agreed to pay a $50,000 penalty.

The SEC’s investigation was conducted by Jeremy Brandt and Liora Sukhatme and was supervised by Sheldon L. Pollock of the SEC’s New York Regional Office. The examination that led to the investigation was conducted by Thomas Riley, Rachel Lavery, Emanuel Asmar, and Majid Mahmood.

The SEC’s Division of Examinations previously issued a Risk Alert in 2017 highlighting typical examples of deficiencies or weaknesses identified by the staff with respect to the Custody Rule.