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Denying Claims of Unlawful Termination, PCAOB Countersues Former Senior Officer

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

The PCAOB and its chairman William Duhnke countersued Sue Lee, a former senior officer of the audit regulatory board who filed a lawsuit against them, alleging unlawful termination in October 2020 on the basis of her race and affiliation with the Democratic Party. They denied the allegations, saying that Lee was fired for cause.

Lee, who was hired in February 2019 as the PCAOB’s first chief risk officer, is of Chinese origin. The suit, filed on March 5, claims that the PCAOB violated the D.C. Human Rights Act.

Lee is seeking to recover monetary compensation for lost wages, reputational harm, and emotional distress. She is also seeking reimbursement for legal fees and costs, and an award of punitive damages.

But the defendants—the audit regulatory board and Duhnke—stated in an April 30, 2021, filing that she has no basis for her allegations and asked the court to dismiss the complaint with prejudice and deny all relief requested by the plaintiff. They are also seeking attorneys’ fees and costs incurred.

Moreover, in the counterclaim, they alleged Lee unjustly enriched herself at the expense of the PCAOB by misrepresenting personal travel expenses as business expenses.

“PCAOB has suffered damage as a result of Ms. Lee’s conduct,” the counterclaim states. “Equity and good conscience require Ms. Lee to repay to PCAOB.”

Lee’s attorney, David Moon with the Lipp Law Firm, PC, did not immediately respond to a request for comment.

In the past 16 years, she has worked as corporate counsel at a number of companies. Before joining the PCAOB, she was senior vice president, general counsel, and corporate secretary of Entegris, Inc., a chemicals and materials company.

Lee’s Suit

Lee’s complaint said she had been praised and was promoted for good performance, but Duhnke’s opinions about her abruptly changed at the onset of the COVID-19 pandemic. She alleged that he regularly referred to the coronavirus as “kung flu” and the “Chinese flu” in her presence beginning in the spring of 2020, among other disparaging remarks.

“Despite Ms. Lee’s exceptional performance as a senior officer of the organization, PCAOB’s Chairman, Mr. Duhnke, perpetrated a xenophobic and racist campaign against Ms. Lee on account of her membership in these protected classes, ultimately culminating in Ms. Lee’s termination from PCAOB and the intentional tarnishing of her professional reputation through the assertion of pretextual and baseless allegations of misconduct,” according to Lee’s lawsuit.

In addition, during this time, the complaint alleged that Duhnke, a former Republican staffer in the U.S. Senate, increasingly targeted Lee after he learned of her affiliation with the Democratic Party.

The complaint notes that she was made acting chief administrative officer (CAO) in July 2019. At the end of 2019, the PCAOB promoted her to permanent CAO following “exemplary performance review.”

In this role, she oversaw the daily operations of PCAOB, including those of its headquarters in Washington and its regional offices, which required regular travels, including the offices in Boston as part of broader efforts to make the board’s operations more cost-efficient.

The complaint stated that Lee provided written reports about her office visits, which were approved beforehand by the PCAOB and reported to Duhnke. In February 2020, the suit said that Duhnke informed conference attendees that Lee was making several visits to regional offices, specifically Boston-area offices, as part of the board’s geographic assessment project.

But Lee’s complaint said that Duhnke fired her in October, telling her that there has been a charge of misconduct leveled against her at the PCAOB and also cited her frequent travels to the Boston area.

He allegedly incorrectly asserted that she had made 36 trips, calling it “ridiculous,” the suit said.

PCAOB and Duhnke’s Response and Counterclaim

The defendants acknowledged that Lee was at times required to visit other PCAOB offices but denied such visits were required frequently. Moreover, they stated that Lee made the trips in violation of the PCAOB’s mandatory telework posture and asserted that the trips were unapproved, improper, and excessive.

In addition, the board said that she did not update Duhnke with complete and accurate information.

For example, the PCAOB found evidence that much of her travel was not only unnecessary to PCAOB but was also personal in nature, the countersuit said.

“Ms. Lee had maintained a residence in the Boston area throughout this period, and, on several occasions, she charged PCAOB for trips to the Boston area during which she visited her home but did not visit the area PCAOB office or, if she did, stayed for only a few minutes,” the countersuit said, detailing some of her trips by date and time.

They also alleged that she scheduled and took the trips on her own without advance notice or approval by Duhnke.

Also, the countersuit said that Lee had been the subject of several complaints from employees involving the Workday Implementation Team.

“During Ms. Lee’s stewardship of this project, employees on the team began complaining about her conduct. For example, employees complained that Ms. Lee moved timelines, deflated team morale, engaged in conflicts with others in leadership roles, limited communication, and similar things,” the counterclaim noted.

In the meantime, this ugly legal battle is occurring during a time of transition at the SEC, which oversees the board. New SEC Chair Gary Gensler is in the middle of hiring senior staff at the agency. And it is unclear what Gensler will do, if anything, with the PCAOB. The commission selects board members and can also dismiss them. Duhnke’s first term ends in October 2022.

But separately on a different matter, in recent weeks, some investor protection advocates have asked Gensler to make some changes at the board because they claim, under Duhnke’s leadership, investor views have been ignored even though the PCAOB was set up to protect investors.

 

This article originally appeared in the May 5, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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