Senior accountant banned over SPACs

‘Quality controls and audit standards are necessary to maintaining this essential gatekeeping role,’ SEC says in fifth ‘gatekeeper’ case in two years.

A veteran accountant has agreed to accept a three-year exile to help settle SEC accusations that he ignored increasingly dire warnings that his firm’s lucrative SPAC practice was overwhelming the company’s ability to perform even basic accounting practices.

Greg Giugliano had been Marcum’s national assurance services leader for more than 20 years, regulators say. He knew the firm already had basic quality assurance problems even before it began setting records with its SPAC business, according to the SEC. On Giugliano’s watch, the problems became so severe that they “permeated many stages of engagement work, such as client acceptance, engagement partner supervision and review, audit documentation and technical consultation,” regulators claim in the 16-page settlement order.

Under the terms of the SEC settlement, Giugliano neither admits nor denies the SEC’s accusations. But he’s agreed that for at least the next three years, he’ll take “no leadership, management, oversight or supervisory position at any registered public accounting firm” and he will have “no decision-making role in connection with (i) performing client acceptance or continuance functions for any engagement to perform attestation or assurance services for any entity that files financial statements with the Commission; or (ii) the quality control system at any registered public accounting firm.” He’s also agreed to accept censure and to pay $75,000 in fines.

‘The strain’

Neither Giugliano nor officials at Marcum responded to Private Funds CFO’s request for comment. In late June, Marcum officials agreed to pay $10 million to settle SEC accusations that the firm was so focused on getting SPAC business aboard – in 2020 and 2021, Marcum audited more than 400 of the 860 SPACs that went public – that it overloaded, and basically capsized, its already listing accounting practice.

“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,” regulators claim. “Giugliano was aware that, in the period immediately preceding the SPAC market’s explosion, Marcum’s annual inspections by the [Public Company Accounting Oversight Board] had revealed an increasing number of deficiencies. Giugliano was also aware that Marcum was subject to consecutive PCAOB enforcement orders – in 2019 and 2020 – related to quality control failures concerning independence and client acceptance; the 2019 order also sanctioned Giugliano based on the PCAOB’s findings that Marcum violated independence standards.”

The Giugliano case is a fresh reminder that the SEC is serious about private funds enforcement, and especially about private fund “gatekeeper” enforcement. Between 2016 and 2021, regulators filed six cases against private funds’ outside auditors. Giugliano’s is the at least the fifth case against a private fund auditor or audit partner since March 2022.

“Investors rely on audit firms to serve a critical function regarding financial reporting,” regulators say in the Giugliano case. “Quality controls and audit standards are necessary to maintaining this essential gatekeeping role. Those charged with oversight and management of these quality control functions are vital to an audit firm’s ability to fulfill this critical function. The quality control system that Giugliano oversaw failed, and as a result, over a multi-year period, certain Marcum audits were not conducted in compliance with audit standards.”