The Public Company Accounting Oversight Board has imposed a $1 million civil penalty against PricewaterhouseCoopers and censured the firm for its audits of Merrill Lynch.
The PCAOB accused Merrill Lynch, Pierce, Fenner Smith of violating the Securities and Exchange Commission’s Customer Protection Rule in fiscal year 2014 and faulted PwC for its examination and audit of the brokerage firm, which is owned by Bank of America.
The SEC’s Customer Protection Rule requires broker-dealers to hold certain kinds of customer securities in lien-free segregated accounts to safeguard them from creditor claims in case the brokerage’s business fails. Merrill Lynch reported it complied with the rule in fiscal year 2014 and its internal control over compliance with the rule was effective. However, in February 2015, the PCAOB found PwC issued audit and examination reports without getting enough evidence about Merrill’s compliance assertions, as required under the PCAOB’s auditing and attestation standards. Later, in June 2016, the SEC found that for several years, including fiscal year 2014, Merrill Lynch held tens of billions of dollars of its customers’ fully paid and excess margin securities within accounts that were subject to liens by third parties, violating the SEC’s Customer Protection Rule.
“An auditor’s attention to a broker’s compliance with the SEC’s Customer Protection Rule provides critical assurance that the business is protecting customer securities from liens by creditors of the broker,” said PCAOB Chairman James R. Doty in a statement. “PwC failed to fulfill its obligations during a period when Merrill Lynch exposed billions of dollars of customer assets to claims of its creditors.”
PwC consented to the PCAOB order without admitting or denying the findings. “We are pleased to have resolved the matter,” PwC US said in a statement to Accounting Today. “Delivering quality is our top priority.”
PCAOB chairman James Doty
Photographer: Rich Clement/Bloomberg
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