SEC Charges Audit Firm Marcum LLP for Widespread Quality Control Deficiencies

The Securities and Exchange Commission (SEC) has announced allegations against audit firm Marcum LLP for systematic quality control issues and audit standard violations. These charges are associated with the audit work they performed for hundreds of special purpose acquisition company (SPAC) clients, which started as early as 2020. However, the SEC’s order indicated that the shortcomings of Marcum were not exclusive to SPAC clients, but were indicative of systematic failures in quality control across the firm. To settle the charges, Marcum has agreed to pay a penalty of $10 million.

The SEC’s order reports that Marcum experienced a threefold increase in its public company clients over a three-year period, the majority of which were SPACs. This included auditing more than 400 SPAC initial public offerings in 2020 and 2021. However, the stress of such expansion revealed significant and prevalent deficiencies in Marcum’s underlying quality control policies, procedures, and monitoring systems. These shortcomings affected nearly every stage of the audit process and were magnified as Marcum acquired more SPAC clients. Furthermore, Marcum violated audit standards related to audit documentation, engagement quality reviews, risk assessments, audit committee communications, engagement partner supervision and review, and due professional care, in hundreds of SPAC audits.

SEC Chair Gary Gensler stated, “Public company auditors hold positions of trust that are vital to safeguarding investors and our broader capital markets. Marcum neglected its fundamental gatekeeper function in favor of its own growth. It undertook over 600 new SPAC clients, an almost sixfold increase in just one year, producing audits at an unsustainable speed and causing pervasive quality control and audit standard violations that put its clients and the investing public at risk.”

Gurbir S. Grewal, Director of the Division of Enforcement, noted, “In the midst of the SPAC boom in recent years, Marcum prioritized revenue growth over audit quality. Its aggressive business growth far outstripped any corresponding development of an already inadequate system of quality controls.”

The SEC’s order finds Marcum guilty of failing to establish, implement, and oversee an adequate system of quality control in relation to certain audit standards and other key quality control components, including client acceptance and technical consultations.

Associate Director of the Division of Enforcement, Carolyn Welshhans, stated, “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.”

Without admitting or denying the SEC’s findings, Marcum has agreed to pay a $10 million penalty, be censured, and take on several corrective actions. These include hiring an independent consultant to review and enhance its audit, review, and quality control policies and procedures, and adhere to certain limitations on accepting new audit clients.

The ongoing SEC investigation is led 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.