The SEC’s rock-hard justice boner for Marcum continues, this time it’s charges against the firm’s former national assurance services leader for “causing widespread quality control deficiencies.” Or in casual parlance, “totally fucking up.”
From today’s news release:
The Securities and Exchange Commission today charged Alfonse Gregory Giugliano, CPA, the former National Assurance Services Leader at Marcum LLP, a public accounting firm, with failing to sufficiently address and remediate numerous deficiencies in Marcum’s quality control system. The SEC previously charged Marcum for these quality control deficiencies and other violations, many of which were in connection with Marcum’s audit work for hundreds of special purpose acquisition companies (SPACs).
According to the SEC’s order, Giugliano oversaw quality control for Marcum’s public company practice, including the firm’s relevant quality control policies, procedures, and monitoring, and directly or indirectly supervised all personnel working within Marcum’s quality control functions. The SEC’s order finds that exponential growth in Marcum’s public company practice exposed substantial deficiencies in these functions.
Moreover, according to the SEC’s order, Giugliano was aware that inspections by the Public Company Accounting Oversight Board (PCAOB) and by Marcum itself revealed numerous deficiencies in Marcum’s quality control system. The SEC’s order finds that Giugliano did not sufficiently address and remediate these deficiencies, leading to quality control and audit standard violations throughout Marcum’s audit work, such as client acceptance, engagement partner supervision and review, audit documentation, and technical consultations. In addition, under Giugliano’s leadership of Marcum’s quality control system, the firm did not sufficiently monitor the effectiveness of many policies and procedures and, in many areas, did not adequately communicate those policies and procedures to relevant personnel.
The SEC order has specifics:
In 2020 and 2021, over 860 SPACs completed initial public offerings (“IPOs”) in the United States. Over 400 of these SPAC IPOs were audited by Marcum. In 2019, Marcum had served as the auditor for only 185 public company issuers; by 2022, Marcum was responsible for auditing over three times that number—a total of 575 issuers, the majority of which were SPACs.
The strain of this exponential growth in Marcum’s public company practice exposed substantial, widespread, and pre-existing deficiencies in the Firm’s underlying quality control policies, procedures, and monitoring that Giugliano oversaw. Giugliano was aware that, in the period immediately preceding the SPAC market’s explosion, Marcum’s annual inspections by the PCAOB had revealed an increasing number of deficiencies.
Through his oversight, Giugliano was also aware that Marcum’s own internal inspections—starting at least in 2018 and continuing through 2021—also revealed deficiencies. Over several years, these inspections identified numerous deficiencies in audit documentation. The 2020 internal inspection also concluded that such deficiencies were caused by insufficient time spent on engagements and audit documentation. Despite inspection findings, Giugliano did not sufficiently address and timely remediate deficiencies in the Firm’s policies, procedures, and monitoring.
As king of assurance, he was aware that Marcum had insufficient policies and procedures related to the evaluation of personnel capacity. And he knew that the firm was having difficulty staffing engagements and making deadlines because of this. How did he know? The more appropriate question would be “how could he not?” At least as early as 2019, Giugliano was on notice that Marcum personnel frequently failed to sign off on certain work papers prior to the release of audit reports.
These difficulties and delays became especially apparent in the summer and fall of 2020, as Marcum’s monthly SPAC client acceptance figures increased from single-digit figures in June, to the mid-teens in July, to 29 clients per month, for three consecutive months in August, September, and October.
From as early as October 2020, Giugliano was aware of widespread failures in the timely completion, assembly, and retention of audit documentation. For example, Giugliano received weekly emails reflecting that the number of work paper binders that were not finalized and assembled for retention within the PCAOB-required 45-day period increased from 23 to 687 between October 2020 and June 2021.
Moreover, Giugliano was repeatedly notified of capacity constraints throughout the SPAC practice. At the beginning of February 2021, for example, a national office partner alerted Giugliano that managers in the SPAC practice were overworked and lacking resources. Nonetheless, over the course of February 2021, Marcum accepted a record 114 new SPAC clients. The same pattern of notifications and high client acceptances continued into March 2021, as the Firm accepted a record 159 new SPAC clients.
He was previously sanctioned by the PCAOB in 2019 for substantially contributing to the firm’s independence violations, an event that marked the first time the PCAOB sanctioned an annually inspected firm’s head of independence for said substantial contributions. He is ironically a former member of the AICPA SEC Regulations Committee and his LinkedIn profile says he “has developed considerable expertise encompassing SEC regulations, accounting, auditing, business forecasting, international operations, mergers and acquisitions, due diligence, management consulting, and quality control.” And regulatory fines, apparently.
The SEC order finds that Giugliano engaged in improper professional conduct within the meaning of Section 4C(a)(2) of the Securities Exchange Act of 1934 and Rule 102(e) of the SEC’s Rules of Practice and that Giugliano caused Marcum to violate Rule 2-02(b)(1) of Regulation S-X. Without admitting or denying the SEC’s findings, Giugliano consented to cease and desist from committing or causing any violations and any future violations of Rule 2-02(b) of Regulation S-X and to pay a civil penalty of $75,000. Giugliano further agreed to a censure and to comply with certain undertakings for a period of three years, including having no leadership, management, oversight, or supervisory position at any registered public accounting firm.