PCAOB: ‘John Doe’ Auditor Challenging Enforcement Action Needs to Identify Self

An auditor challenging the constitutionality of PCAOB disciplinary proceedings against him should be required to identify himself, the board argued in a June 7, 2024, brief urging a federal court to reject the plaintiff’s “John Doe” status.

The PCAOB is facing three separate but similar lawsuits in Tennessee, DC, and Texas from plaintiffs subject to either a disciplinary action or investigation. In each case, the plaintiffs are seeking to litigate pseudonymously.

The suits are part of a broader onslaught of challenges to the administrative enforcement regimes of the SEC and PCAOB as all sides await a Supreme Court ruling in SEC v. Jarkesy, in which the high court is weighing the constitutionality of the commission’s use of administrative law judges (ALJs).

The PCAOB matters have a unique hitch to them, however. Under the Sarbanes-Oxley Act of 2002, PCAOB proceedings take place behind closed doors unless all parties agree to make them public. The John Doe auditors argue, among other points, that forcing them to reveal their identities as a precondition to challenging the proceedings’ constitutionality would run counter to the Sarbanes-Oxley confidentiality provisions and subject them to immediate reputational harm.

The first of the three suits, filed in January 2023 in the Northern District of Texas and later transferred to the DC, involves an accountant who previously worked for a Colombian firm that is part of a larger international network. That accountant is facing disciplinary proceedings in which the PCAOB alleges he “failed to cooperate with the Board’s inspection and investigation of a component audit” related to a public company’s 2015 financial statements, according to the complaint.

The complaint lodges a half dozen constitutional grievances against the PCAOB, including that the proceedings violate the accountant’s right to a jury trial under the Seventh Amendment. Those constitutional issues relate to the functioning of the PCAOB and can be “fully and fairly adjudicated without public revelation of Plaintiff’s identity,” the plaintiff argued in a May 17 filing.

But the PCAOB, in its filing late last week, argued that the accountant’s motion to litigate pseudonymously “fails to show that a departure from the ordinary rule of public disclosure is warranted.”

“The case does not threaten revelation of any highly personal information that should be hidden from the public,” the PCAOB stated. “The suit does, however, attack a significant federal statute, creating a heightened need for public information. Doe’s arguments, if accepted, would require permitting pseudonym status in any case that implicated some arguably sensitive element—that is, in just about any case.”

The PCAOB argued that the DC Circuit’s five-factor test for proceeding pseudonymously “weighs heavily” in favor of disclosing the accountant’s identity. The board also attacked what it frames as the plaintiff’s attempt to “leverage the statutory confidentiality of Board proceedings into confidentiality for this federal suit.” Sarbanes-Oxley, the PCAOB argued, says nothing about retaining confidentiality outside of those proceedings, “meaning the ordinary rule of open access to judicial proceedings prevails.”

The plaintiffs in the PCAOB lawsuits in the Middle District of Tennessee and Southern District of Texas have made similar arguments for maintaining confidentiality. They and the plaintiff in the DC matter are represented by the New Civil Liberties Alliance (NCLA), among other counsel.