SEC Charges Audit Firm Marcum LLP for Widespread Quality Control Deficiencies
Washington D.C., June 21, 2023
The Securities and Exchange Commission today charged audit firm Marcum LLP with systemic quality control failures and violations of audit standards in connection with audit work for hundreds of special purpose acquisition company (SPAC) clients beginning at the latest in 2020. The SEC’s order also found that Marcum’s deficiencies were not limited to SPAC clients, but they reflected systemic quality control failures throughout the firm. Marcum agreed to pay a $10 million penalty to settle the charges.
According to the SEC’s order, over a three-year period, Marcum more than tripled its number of public company clients, the majority of which were SPACs, including auditing more than 400 SPAC initial public offerings in 2020 and 2021. The strain of this growth, however, exposed substantial, widespread, and pre-existing deficiencies in the firm’s underlying quality control policies, procedures, and monitoring. These deficiencies permeated nearly all stages of the audit process and were exacerbated as Marcum took on more SPAC clients. Moreover, in hundreds of SPAC audits, Marcum failed to comply with audit standards related to audit documentation, engagement quality reviews, risk assessments, audit committee communications, engagement partner supervision and review, and due professional care. Depending on the audit standard at issue, violations were found in 25-50 percent of audits reviewed, with even more frequent, nearly wholesale violations found as to certain audit standards across Marcum’s SPAC practice.
“Public company auditors occupy positions of trust that are critical to protecting investors and our capital markets more broadly,” said SEC Chair Gary Gensler. “Marcum neglected its essential gatekeeper function in service to its own growth. Marcum took on more than 600 new SPAC clients for a nearly six-fold increase in just one year, churning out audits at an unsustainable pace causing widespread quality control and audit standard violations that put its clients and the investing public at risk.”
“Throughout the SPAC boom of the last several years, Marcum prioritized increased revenue over audit quality: its aggressive pursuit of business growth far outpaced any commensurate development of an already weak system of quality controls,” said Gurbir S. Grewal, Director of the Division of Enforcement. “From 2020 through 2021, the market saw more than 860 SPACs complete IPOs and Marcum audited nearly half of them, without adequate consideration for its ability to serve as gatekeepers. Its actions put investors at risk and I am incredibly proud of the results of this staff-initiated enforcement action which brings needed accountability to the SPAC space.”
The SEC’s order found that Marcum failed to design, implement, and monitor an adequate system of quality control in connection with certain audit standards, as well as in relation to other key quality control components, including client acceptance and technical consultations.
“Today’s action will help protect the integrity of our markets by requiring Marcum to engage in extensive undertakings to ensure that the firm meets essential quality control and audit standards,” said Carolyn Welshhans, Associate Director of the Division of Enforcement. “The SEC’s order requires Marcum to retain an independent compliance consultant with a broad mandate to assess and strengthen the firm’s audit, review, and quality control policies and procedures. Marcum also agreed to restrictions on the type and number of new audit clients that the firm may accept.”
The order against Marcum finds it engaged in improper professional conduct within the meaning of Rule 102(e) of the SEC’s Rules of Practice, violated multiple audit standards across numerous engagements, and violated Rule 2-02(b)(1) of Regulation S-X. Without admitting or denying the SEC’s findings, Marcum agreed to pay a $10 million penalty, to be censured, and to undertake several remedial actions, including retaining an independent consultant to review and evaluate its audit, review, and quality control policies and procedures, as well as abide by certain restrictions on accepting new audit clients.
The SEC’s investigation, which is ongoing, was conducted by Kathleen McDermott, Alexandra Arango, and Timothy Tatman, under the supervision of Ms. Welshhans and Laura Josephs. The SEC appreciates the assistance of the Public Company Accounting Oversight Board, which today announced a parallel action.
[US Securities and Exchange Commission]
