U.S. accounting watchdog faces lawsuit over its ‘secretive’ disciplinary process

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(Reuters) – The U.S. accounting watchdog is facing a lawsuit over claims the regulator’s process of handling disciplinary matters behind closed doors is unconstitutional.

The lawsuit, filed Thursday in federal court in Texas by the conservative Washington-based New Civil Liberties Alliance, accuses the Public Company Accounting Oversight Board (PCAOB) of bringing a “secret prosecution” without due legal process against an accountant working for a firm in Colombia.

The PCAOB is a non-profit body lawmakers created in the wake of the Enron-era securities fraud scandals of the early 2000s meant to monitor and oversee the audits of public companies to protect investors and ensure accurate, independent reports.

The complaint, which describes the Board’s disciplinary process as “biased” and “secretive”, marks the latest challenge from pro-industry groups challenging federal regulators’ authority. Other lawsuits have taken aim at the constitutionality of the Consumer Financial Protection Bureau and of the use of in-house tribunals in cases brought by the U.S. Securities and Exchange Commission.

PCAOB spokesperson Jennifer Donohue declined to comment in detail on the challenge, saying only: “The PCAOB is laser-focused on protecting investors.”

In their complaint, the New Civil Liberties Alliance, a Washington pressure group that opposes what it calls the “unconstitutional administrative state,” claims the PCAOB unfairly targeted an unnamed accountant in confidential proceedings, claiming the individual failed to cooperate with an inspection of an audit related to a publicly traded company’s annual financial statements.

The group also claims the PCAOB is unsupervised by duly appointed government officials and not subject to meaningful oversight. The SEC oversees the board and can review its findings, which are also subject to challenge in court.

PCAOB Chair Erica Williams said in an interview last year that she would support legislative changes that would make the board’s proceedings public, like many other regulators.

While criticizing the secrecy of PCAOB disciplinary proceedings, the lawsuit also seeks to maintain the anonymity of plaintiff “John Doe,” citing protections under the Sarbanes-Oxley reforms enacted in 2002.