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Lawsuit Claims PCAOB Violated Constitution When Disciplining Accountant

Ruth Singleton
Published Date:
Jan 24, 2023


In a lawsuit filed against the Public Company Accounting Oversight Board (PCAOB) last week, an unnamed accountant claims that the PCAOB, by conducting "secret disciplinary proceedings" against him, deprived him of his right to a jury trial in violation of the Seventh Amendment to the Constitution and his right to due process in violation of the Fifth Amendment, among other violations.

The complaint refers to the plaintiff as "John Doe" and states that he is "an accountant who previously worked as an auditor at an accounting firm in Colombia, South America, which is a member of a larger international network of accounting firms." The complaint was filed in the U.S. District Court for the Northern District of Texas, stating that venue  is proper because the the PCAOB is registered to do business in Texas and has physical office space and employees in Irving and Houston. The complaint states that “John Doe” is a pseudonym used to protect the plaintiff’s true identity and notes that accompanying this complaint is a motion for leave to allow the plaintiff to prosecute this lawsuit pseudonymously.

Representing the plaintiff is the New Civil Liberties Alliance (NCLA), an organization that, according to its website, "views the administrative state as an especially serious threat to constitutional freedoms." Accounting Today reported that the NCLA often files lawsuits against the IRS, the Securities and Exchange Commission, and other agencies on behalf of conservative and libertarian causes. 

The plaintiff's complaint centers on the PCAOB's status as a private, nonprofit, nongovernmental corporation created by the Sarbanes-Oxley Act. It quotes that enabling legislation, which provides: "The Board shall not be an agency or establishment of the United States Government, and, except as otherwise provided in this Act, shall be subject to, and have all the powers conferred upon a nonprofit corporation by, the District of Columbia Nonprofit Corporation Act. No member or person employed by, or agent for, the Board shall be deemed to be an officer or employee of or agent for the Federal Government by reason of such service."

The plaintiff complains that despite its legal status as a private corporation, the PCAOB "is a Government-created, Government-appointed entity, with expansive powers to govern an entire industry. It further states the the PCAOB's "investigative, prosecutorial, and pseudo-judicial powers are massive and largely unchecked."

The complaint alleges that in February 2022, PCAOB  prosecutors threatened the plaintiff, through his counsel, that they would initiate disciplinary proceedings against him alleging that he failed to cooperate with the the PCAOB's inspection and investigation of a component audit related to a company's fiscal year 2015 financial statements, stating, "The prosecutors did not threaten any charges that questioned the quality of the underlying audit work."  It also states that, that in order to settle the PCAOB"s anticipated charges, the plaintiff "would have to agree to a lifetime bar and a $150,000 penalty, which at the time would have been the highest penalty imposed by the Board in a settlement against an individual accountant in its 20-year history. The demanded penalty was multiples of Plaintiff’s annual salary in Colombia at the time of the audits in question."

Accounting Today reported that the PCAOB has been stepping up its enforcement activity in the past year. The board consists of mostly new board members who joined last year, in response to complaints that the PCAOB  had become too lenient in overseeing the audit profession.

PCAOB spokesperson Jennifer Donohue, when asked about the lawsuit, told Accounting Today,"The PCAOB is laser-focused on protecting investors."

The plaintiff claims that the PCAOB's disciplinary proceeding against him violates the Constitution "in numerous respects and is inflicting significant here-and-now injury" on him. More specifically, he claims that:

"(1) the Board’s prosecution is being funded by money raised and spent in violation of the Appropriations, Taxing, and Spending Clauses of Article I of the Constitution and the separation of powers principles enshrined in those clauses;

(2) the Board, its prosecution staff, and its hearing officer are private citizens wielding punitive executive law enforcement power against Plaintiff under color of federal law without meaningful direction and supervision by any principal Officer of the Executive Branch in violation of Article II of the Constitution; 

(3) the Board hearing officer assigned to superintend and adjudicate its disciplinary proceedings is an inferior constitutional Officer who has not been lawfully appointed under the Appointments Clause of Article II of the Constitution;

(4) the Board hearing officer is also protected by multiple layers of protection from removal by the President in violation of Article II of the Constitution;

(5) the Board’s disciplinary process is systemically biased, secretive, and unfair in violation of the Due Process Clause of the Fifth Amendment to the Constitution;

and (6) the Board’s disciplinary process deprives Plaintiff of his right to a jury trial in violation of the Seventh Amendment to the Constitution."

Based upon the plaintiff's allegations that the PCAOB violated his constitutional rights, the plaintiff is seeking the following relief: an injunction prohibiting the PCAOB from continuing its disciplinary proceedings against the plaintiff; a declaratory judgment declaring that the PCAOB's disciplinary proceedings against the plaintiff are unlawful and unconstitutional; an award of attorneys’ fees and costs to the plaintiff; and such other and further relief as the court deems just and appropriate. 

Accounting Today reported that while the NCLA is currently seeking a hearing in the district court,  the case could have wider implications if there was an appeal to a higher court, given the increasingly conservative makeup of the U.S. Supreme Court.

NCLA litigation counsel Russ Ryan told Accounting Today, "It's a broad-based objection to the way that the disciplinary process is handled at the PCAOB. ... We think there's any number of constitutional problems with the case."

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