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US Securities and Exchange Commission

Marcum Partner Sues SEC to Block ‘Unconstitutional’ Administrative Enforcement Action

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Marcum LLP partner Edward Hackert on February 27, 2024, asked a US district court to block the SEC’s administrative action against him, calling the proceedings a violation of his constitutional right to a jury trial, among other grievances.

In its January order launching the proceedings in Accounting and Auditing Enforcement Release (AAER) No. 4483, the SEC accused Hackert of “numerous violations” of PCAOB auditing standards related to supervision and documentation. The commission alleged that between 2012 and 2022, he “failed to properly supervise numerous audit engagements and to ensure that the engagements were performed in compliance with PCAOB auditing standards.”

“Among other things, Hackert repeatedly failed to review the work of the engagement team members and to document that review prior to the report release date,” the SEC stated in the order.

Hackert’s complaint, filed in the Southern District of New York (SDNY), frames the commission’s action as “entirely unprecedented.”

“Other than second-guessing a single real-time accounting judgment relating to the classification of certain income during the audit of one issuer, the [order] does not cite a single audit failure, false financial statement, harmed investor, or impeded regulator,” Hackert stated in the complaint. “The SEC has never litigated (and never settled) a case against an individual auditor solely for documentation-related issues as minor and unsubstantiated as those the SEC has alleged in the” order.

Hackert is represented by Debevoise & Plimpton LLP partner Andrew Cerseney, former SEC enforcement director. He is the second Marcum partner to sue the commission looking to block an administrative enforcement action as unconstitutional, after Alan Markowitz. That latter suit has been stayed pending the outcome SEC v. Jarkesy at the Supreme Court, which is set to determine whether the commission’s use of administrative law judges (ALJ) is constitutional. The Supreme Court heard oral argument in Jarkesy in November.

Hackert’s constitutional arguments are somewhat similar to those of Markowitz, which in turn echo those at the center of the Jarkesy case.

In his complaint, Hackert argued that the proceedings deprive him of his rights to due process under the Fifth Amendment; they violate his Seventh Amendment rights to a jury trial; and the appointment and removal of the ALJ overseeing the proceedings is “is insulated from control by the President” in violation of Article II of the Constitution.” The complaint also casts the in-house tribunals as unfairly tilted in favor of the commission, with fewer protections around rules of evidence and discovery than what would be available to a defendant in federal court.

The SEC did not immediately respond to a request for comment.


This article originally appeared in the March 1, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.

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