Please note: the CUBE RegNews team is taking a break between 26th and 30th June.
SEC fines audit firm $10m for QC failings
The Securities and Exchange Commission (SEC) has taken action against audit firm Marcum LLP for significant quality control failures and violations of audit standards in relation to its audit work for numerous special purpose acquisition company (SPAC) clients.
The SEC’s investigation revealed that Marcum’s deficiencies were not isolated to SPAC clients but reflected widespread quality control failures throughout the firm. In order to resolve the charges, Marcum has agreed to pay a penalty of $10 million.
According to the SEC’s findings, over a three-year period, Marcum experienced a substantial increase in its number of public company clients, with a majority being SPACs. In fact, Marcum audited more than 400 SPAC initial public offerings in 2020 and 2021 alone. However, the firm’s rapid growth exposed significant pre-existing deficiencies in its quality control policies, procedures, and monitoring. These deficiencies affected nearly every stage of the audit process and were exacerbated as Marcum took on more SPAC clients.
In the course of hundreds of SPAC audits, Marcum failed to adhere to audit standards relating to
- audit documentation,
- engagement quality reviews,
- risk assessments,
- audit committee communications,
- engagement partner supervision and review, and
- as due professional care.
Violations of audit standards were found in 25-50 percent of the audits reviewed, with certain standards being almost entirely disregarded across Marcum’s SPAC practice.
SEC Chair Gary Gensler said: “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.”
The SEC’s order concluded that Marcum failed to establish, implement, and oversee an adequate system of quality control concerning specific audit standards, as well as other critical components of quality control, including client acceptance and technical consultations.
CFTC fines individual $1m
A US District Court has issued a final judgment against Rico Cox of Fort Lauderdale, Florida, resolving the CFTC’s lawsuit filed on May 31, 2022. The court found Cox guilty of fraudulently soliciting investments in commodity futures and misappropriating funds from at least 14 pool participants.
As a result of the court’s order, Cox is permanently barred from engaging in any activities that violate the Commodity Exchange Act (CEA). Additionally, he has been ordered to pay $710,667 in restitution, $339,300 in disgorgement, and a civil monetary penalty of $1,017,900.
The court found that:
- Cox falsely claimed he was a successful trader with years of experience trading futures contracts.
- Cox failed to tell participants that in 2016 he was found liable for fraudulently soliciting funds to trade in a managed futures account in a CFTC case against him.
- Cox issued false statements to participants showing false profits purportedly earned with their investments and he grossly exaggerated account balances.
The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrong.
MAS fines for AML/CFT weaknesses
The Monetary Authority of Singapore (MAS) has imposed composition penalties amounting to S$3.8 million in total on Citibank NA, Singapore Branch (Citibank), DBS Bank Ltd (DBS), OCBC Singapore (OCBC) and Swiss Life (Singapore) Pte. Ltd. (SLSG) for breaches of MAS’ Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements.
- Citibank has been fined S$400,000
- DBS has been fined S$2.6 million
- OCBC has been fined S$600,000
- SLSG has been fined S$200,000
All the institutions were found to have inadequate AML/CFT controls in place when they dealt with persons who were involved in transactions with, or had links to, Wirecard AG or its related parties.
FCA’s Vote Reporting Group issues CP
The FCA’s Vote Reporting Group was established by the FCA in 2022 as an independent entity to improve shareholder vote reporting by UK asset managers. It has now issued its first CP of relevance to asset managers which aims to build industry consensus on a voluntary vote reporting template for asset managers in the UK. The consultation proposes a voluntary, standardized and comprehensive ‘vote reporting template’ for asset managers to communicate to asset owner clients on their voting activity.
HKMA launches bank info sharing platform
The Hong Kong Monetary Authority (HKMA), the Hong Kong Association of Banks (HKAB) and the Hong Kong Police Force (HKPF) has announced the launch of the Financial Intelligence Evaluation Sharing Tool (FINEST), a bank-to-bank information sharing platform.
The idea behind the new platform is to help increase banks’ ability to share information for detecting and disrupting fraud and mule account networks more effectively, giving the public greater protection from fraud and financial crimes and enhancing the integrity of the banking system.
AMF launches DeFi consultation
French regulator Autorité des marchés financiers (AMF) has published a new discussion paper to consider the regulatory challenges of new and innovative crypto products being developed on automated, decentralized and disintermediated protocols that constitute the emerging DeFi ecosystem.
The deadline for responses to the consultation is 30th September.
A selected summary of key developments for regulated financial institutions
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