U.S. Securities & Exchange Commission Imposed $10 Million Fine on Audit Firm Marcum LLP for Widespread Quality Control Deficiencies

U.S. Securities & Exchange Commission Imposed $10 Million Fine on Audit Firm Marcum LLP for Widespread Quality Control Deficiencies

The U.S. Securities and Exchange Commission (SEC) has ordered the audit firm Marcum LLP to pay $10 million fine for being deficient in systemic quality control failures and violations of audit standards in connection with audit work for hundreds of Special Purpose Acquisition Company (SPAC) clients.

The SEC’s order also found that Marcum’s deficiencies were not limited to SPAC clients, but revealed 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.

With respect to 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.

The SEC Chair Gary Gensler commented, “Public company auditors occupy positions of trust that are critical to protecting investors and our capital markets more broadly, 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.”

Furthermore, SEC observed, that Marcum had 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.

Therefore, the Commission held that Marcum was 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.

Consequently, without admitting or denying the SEC’s findings, Marcum has 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, was conducted by Kathleen McDermott, Alexandra Arango, and Timothy Tatman, under the supervision of Ms. Welshhans and Laura Josephs.