New Rule Makes Thousands of Stocks, Funds Off-Limits at PricewaterhouseCoopers

The purge of audited companies extends to family members' holdings, college savings and retirement accounts.
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Thousands of PricewaterhouseCoopers managers are scrambling to comply with a new edict that says they must unload by Aug. 31 stock, bonds, mutual funds and other investments tied to companies the firm audits.

The crackdown, announced to employees about three weeks ago, extends to approximately 10,000 managers restrictions that had previously applied only to the firm's partners. The restrictions are similar to those at other Big Five public accounting firms. But because of PricewaterhouseCoopers' dominant market share in the financial services industry, its restrictions are proving particularly burdensome for its own employees.

PricewaterhouseCoopers' Web site gloats that the firm "serves over 1,800 investment companies, representing 26 of the top 30 mutual fund complexes." That means mutual funds offered by







T. Rowe Price







, to name a few, are off-limits.

"There are thousands that are still available," says spokesman Dave Nester.

But one East Coast manager, who asked not to be named, says the firm's 401(k) retirement plan doesn't offer a single mutual fund that carries


top five-star rating. Nester could not confirm this, but he said the new restrictions did not cause any changes to the firm's 401(k) offerings.

Fidelity and Vanguard also manage assets for several states' college saving tuition plans, including those offered by Massachusetts, New Hampshire, Delaware and Iowa. These states' plans are among the best offered, and they're available to both in-state and out-of-state residents. But not to PricewaterhouseCoopers employees.

The firms' managers also have been told to sell any restricted investments from investment portfolios and retirement accounts belonging to spouses and children.

If a family member, such as a grandparent, has set up a custodial account for an employee's child, the restricted securities and funds must be purged from them too. Restricted investments may not be held in a blind trust either.

Also off-limits are stocks and bonds in more than 3,200 companies the PricewaterhouseCoopers audits, including such widely held issues as


(T) - Get Report



(IBM) - Get Report


Walt Disney

(DIS) - Get Report



(XON) - Get Report



(F) - Get Report


Bristol-Myers Squibb

(BMY) - Get Report


"How can I save for retirement, my kids' education? I can't save for anything," complains a senior manager.

PricewaterhouseCoopers will enforce the restrictions by requiring the affected employees to submit brokerage statements and past tax returns, and conducting spot audits.

The new investment restrictions follow a complaint earlier this year by the

Securities and Exchange Commission

that 20 employees in the firm's Tampa, Fla., office were found to have owned shares in public companies audited by the firm on 70 occasions, in violation of SEC regulations. The SEC told PricewaterhouseCoopers to clean up the mess and ensure the rules weren't violated again.

"The firm decided to take a fresh look at our policies and re-emphasize the critical nature of maintaining independence in fact and in appearance," says Nester. "Independence is the hallmark of our firm and profession."

The SEC requires that any professional at a public accounting firm providing any service to a client can't own a significant amount of stock in the company. In addition, any manager within the office conducting the audit can't own the company's stock. And a firm's partners, in general, can't own stock in any company for which the firm provides services.

It's the second SEC rule that appears to have prompted PricewaterhouseCoopers' new restrictions. The firm realized how difficult it would be to keep track of managers, their office locations and the clients each office handles. So for administrative purposes, it has banned any company that the firm audits from the investment pool of all managers and partners.

There is "no general SEC requirement that looks like what PWC is doing," says Art Siegel, executive director of the

Independent Standards Board

, an industry watchdog unit.

"This is strictly an administrative convenience. It's basically PWC being lazy," says the East Coast manager.

But two other Big Five firms --

Ernst & Young


Arthur Andersen

-- have had this type of plan in place for a while now. In fact, Ernst & Young's restrictions extend beyond managers to include those at the staff level as well.