Rep. Patrick McHenry of North Carolina, the top Republican on the House Financial Services Committee, on June 29, 2021, sought documents from the SEC and PCAOB as part of the committee’s investigation into the SEC’s firing of the PCAOB’s Chairman, William Duhnke, and clean sweep of its board members.
McHenry also released an unpublished January report that documented a “culture of fear” at the audit regulator following the Duhnke-led board’s termination of seven senior staffers in 2018. Despite detailing an array of governance criticisms, that report by Kalorama Legal Services did not challenge the underlying reason for the firings – only the board’s handling of them – and did not explicitly call for Duhnke’s ouster.
Kalorama Legal Services is led by Harvey Pitt, former SEC chairman under former President George W. Bush. The SEC retained the firm following a May 2019 whistleblower complaint by PCAOB staffers but did not release the firm’s findings.
McHenry, who posted the Kalorama report on the Financial Services Committee Republicans website, used it to further his argument that Duhnke’s early June removal by new SEC Chair Gary Gensler was unjustified.
“To date, the available evidence neither supports the SEC’s partisan vote to overhaul the PCAOB nor dispels the appearance of a political motivation for the Commission’s recent actions,” he wrote in his letter to Gensler, warning that “Congress did not envision the PCAOB coopted by partisans at the SEC.”
McHenry also sent a similar letter to PCAOB acting Chair Duane DesParte. In both letters, he sought documents and communications related to the Kalorama report, Duhnke, and the SEC’s reported investigation into Duhnke’s handling of complaints, among other topics.
“Records related to this matter will shed light on what appears to be an unprecedented—and unjustified—attempt to politicize the PCAOB,” McHenry wrote.
The letters are another sign of Republican anger over Gensler’s June 4 announcement that the SEC had removed Duhnke and would seek candidates for all five board positions. Days later, Gensler formally began the process for filling those seats. (See Appointment Process For PCAOB Seats Begins, But Republicans Seek to Investigate Removal of Trump-era Board Members in the June 10, 2021, edition of Accounting & Compliance Alert.)
Gensler’s announcement came amid a push by progressive activists and Democratic lawmakers to fire Duhnke. Sen. Elizabeth Warren, a Massachusetts Democrat, in late May joined Sen. Bernie Sanders of Vermont in calling for a “clean slate” at the PCAOB, citing a decline in enforcement actions at the audit regulator, stagnating advisory groups, and the weakening of auditor independence standards, among other grievances. (See Sens. Warren, Sanders Call for ‘Clean Slate’ at Audit Regulator in the May 28, 2021, edition of ACA.)
This article originally appeared in the July 1, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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