An audit firm subject to a PCAOB investigation over the auditing of crypto assets on March 27, 2024, sued the board in US district court to halt what it framed as an ‘excessively intrusive and burdensome’ document demand.
The firm filed the complaint in the Southern District of Texas as an anonymous “John Doe Corporation” plaintiff. It is the latest in a string of challenges aimed squarely at the structure of the PCAOB’s enforcement mechanism under the Sarbanes-Oxley Act of 2002.
The firm is represented by Dickinson Wright PLLC, as well as the New Civil Liberties Alliance (NCLA), an organization that is also involved in separate John Doe challenges to the PCAOB in Tennessee and Washington, D.C.
Jacob Frenkel, chair of Government Investigations & Securities Enforcement at Dickinson Wright, is lead counsel.
The complaint describes the plaintiff as a registered public accounting firm that has received six accounting board demands (ABDs) from the PCAOB “requiring them to produce tens of thousands of pages of documents in an onerous format not even required by the SEC, and to sit for seven full days of formal, on-the-record sworn testimony so far.”
It added that the PCAOB’s Division of Enforcement and Investigations (DEI)’s most recent demand seeks “audit documentation and information from an entirely different year’s audit than what had consumed the preceding two-and-one-half years of investigation.”
A PCAOB spokesperson declined comment.
The suit comes amid a broader salvo of constitutional challenges to both the SEC’s and PCAOB’s in-house enforcement ahead of the upcoming Supreme Court ruling in SEC v. Jarkesy, which is set to shape the commission’s future use of administrative law judges (ALJs).
The March 27 complaint casts the PCAOB’s investigative process as an unlawful delegation of legislative power, as well as structurally unconstitutional and depriving the plaintiff of due process under the Fifth Amendment and Sarbanes Oxley’s “fair procedures” for investigating and disciplining registered public accounting firms.
The lawsuit seeks to void the board’s March 14 investigative demand and bar the PCAOB from enforcing it or threatening sanctions for noncooperation. It also seeks to bar the board from issuing further ABDs to the firm in connection with the investigation unless certain conditions are met.
The complaint also takes aim at the PCAOB’s approach to crypto.
“Because there are no formal standards, rules, or regulations articulating any regulatory expectations related to cryptocurrencies, cryptoassets, or crypto-mining issuers, Plaintiff did not have fair notice of the audit expectations underlying DEI staff’s now expanded substantive investigation through its new ABD and any potential future disciplinary proceedings,” the complaint stated. “And, with the absence of such fair notice, the applicable auditing standards effectively are whatever the Board’s DEI staff claim them to be.”
This article originally appeared in the March 28, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
Get all the latest tax, accounting, audit, and corporate finance news with Checkpoint Edge. Sign up for a free 7-day trial today.
