The SEC charged Munakata Associates LLC, a registered investment adviser with approximately $64 million in RAUM, 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, the firm's 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, 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 (the "Custody Rule"). The firm agreed to a $50,000 penalty.