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‘John Doe’ Tennessee Accountant Challenges PCAOB’s Enforcement Powers

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

A Tennessee accountant facing a PCAOB disciplinary action on March 5, 2024, asked a federal court to halt the proceedings in a far-reaching complaint that attacks the board’s enforcement authority and funding structure.

The complaint describes the anonymous “John Doe” plaintiff as employed by a PCAOB-registered firm with an “otherwise unblemished, 30+ year career as an accountant” until the board launched the closed-door proceedings in September 2023. The board, more than a year before, had relayed it would begin the proceedings tied to alleged failings in early 2018 audit work, according to the complaint.

A PCAOB spokesperson, in a statement to Thomson Reuters, said: “The PCAOB is laser focused on protecting investors.”

The challenge comes amid a broader campaign by proponents of curtailing administrative power who seek to place new checks on both the SEC’s and PCAOB’s enforcement regimes. The unnamed Tennessee accountant is represented by the New Civil Liberties Alliance (NCLA), a group that is also representing a separate anonymous plaintiff who filed a similar suit against the PCAOB last year in Texas. The Supreme Court is slated to weigh in on the constitutionality of the SEC’s own administrative tribunals this year, while the commission is facing parallel constitutional challenges by audit firm partners subject to the in-house proceedings.

The most recent NCLA suit, filed in the Middle District of Tennessee, mirrors some of the constitutional arguments made in the other legal challenges. The complaint, among other points, alleges the PCAOB’s adjudication process “unlawfully usurps and purports to relocate” the power vested in federal courts under Article III of the Constitution; the board, alongside its prosecution staff and hearing officer, are private parties wielding “punitive executive law enforcement power” without the meaningful oversight by a principal officer of the executive branch, in violation of Article II; the hearing officer enjoys multiple layers of protection from removal by the president, also in violation of Article II; and the proceedings deprive the plaintiff of a right to a jury trial in violation of the Sixth and Seventh Amendments.

“As a result of the constitutional violations described in this Complaint, Plaintiff is being deprived of his fundamental right to have his fate determined by a neutral, lawfully structured decisionmaker after a full and fair jury trial on the merits,” the complaint stated.

The complaint, as well, criticizes the PCAOB’s “unconstitutional taxation, funding, and spending” that exists outside of the annual congressional appropriations process. Under the Sarbanes-Oxley Act of 2002 and Dodd-Frank Act, the PCAOB derives its budget from accounting support fees from issuers and broker-dealers whose financial statements are required to be audited by a PCAOB-registered firm. The SEC must approve the PCAOB’s budget. Sec. 982 of PL111-203


This article originally appeared in the March 7, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.

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