Investor protection is one of the SEC’s three fundamental missions. To that end, Rule 206(4)‑2 under the Investment Advisers Act of 1940, commonly known as the “custody rule,” is designed to ensure that investment advisers take appropriate care of client assets. The recent SEC settlement with a registered investment adviser is an important reminder of the need for strict compliance with the custody rule. By failing to timely complete and deliver to investors audited financial statements for two of its funds, the adviser failed to satisfy all of the criteria needed to avail itself of the exception to the custody rule’s surprise examination requirement, the SEC charged. This article reviews the alleged violations, the terms of the settlement order and common ways advisers may violate the custody rule. See our two-part discussion of the custody rule with Proskauer partner Robert Plaze: “History and Possible Amendments” (Dec. 19, 2019); and “Compliance Challenges, Common Issues and Tips” (Jan. 16, 2020).