Officials said the action stems from violations in its examination and audit of Merrill Lynch, Pierce, Fenner & Smith, Inc. compliance with the Securities and Exchange Commission’s (SEC) Customer Protection Rule in fiscal year 2014.
“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,” James R. Doty, PCAOB chairman, said. “PwC failed to fulfill its obligations during a period when Merrill Lynch exposed billions of dollars of customer assets to claims of its creditors.”
The board determined in February 2015 PwC issued audit and examination reports without obtaining sufficient evidence about Merrill’s compliance assertions, which is required by PCAOB auditing and attestation standards.
The probe also revealed, officials said, the SEC referenced Merrill Lynch held tens of billions of dollars of its customers’ fully paid and excess margin securities in accounts subject to liens by third parties, a violation of the Customer Protection Rule.
The PCAOB is responsible for overseeing auditors’ compliance with the Sarbanes-Oxley Act, federal securities laws, professional standards and PCAOB and Securities and Exchange Commission rules.