PWC relaxes position on employee investments.

Faced with a mutiny in its ranks, PricewaterhouseCoopers LLP backed down on a policy aimed at limiting employee investments in companies for which the firm performs audit engagements. Within a month of directing its employees to dump all of their investments in the affected companies, the firm softened its stance.

PricewaterhouseCoopers had ordered all employees above the rank of manager to sell, by the end of August, stocks, bonds and long or short positions in any company it audits. The policy, which applied to the spouses, cohabitants and dependents of employees as well, also prohibited investments in firm-audited mutual funds. Employees were responsible for any taxes, expenses and losses incurred as a result of the divestitures.

After employees complained that divestitures would create economic turmoil for them, the firm agreed to allow them to keep investments acquired before June 17, the date the policy was adopted.

PricewaterhouseCoopers had initiated the procedures after being censured in January by the SEC for violating conflict-of-interest and accounting regulations.

"Partners of an audit firm may not own stock in an audit client," said Randall J. Fons, regional director of the SEC's Southeast regional office, about auditor independence. "Partners have a direct financial interest in the audit firm and, therefore, should not have a direct financial interest in any audit client."

The SEC charged that partners of PricewaterhouseCoopers, (then Coopers & Lybrand, LLP) violated auditor independence rules by making investments in companies the firm audited. (Price Waterhouse and Coopers & Lybrand merged in 1998.)

The SEC charges stemmed from investment activity between 1996 and 1998, which included

* Four instances in which certain Coopers & Lybrand professionals owned securities of publicly held audit clients for which the firm provided audit services.

* Thirty-one instances in which partners or managers owned securities of publicly held companies for which they personally provided no professional services but which were clients of Coopers & Lybrand.

* Forty-five instances in which the firm's retirement plan owned securities of publicly held companies that were audit clients of either Coopers & Lybrand or Price Waterhouse.

The SEC censured PricewaterhouseCoopers and ordered it to establish a $2.5 million fund to increase awareness of the independence requirements for public accounting firms throughout the profession. The SEC also directed the firm to establish procedures for monitoring its adherence to independence rules and a database to verify its compliance with those rules. Pricewaterhouse Coopers consented to the SEC's order without admitting or denying its findings.