April 12, 2018 Practice Points

D.C. Circuit Holds that the PCAOB Improperly Excluded Accounting Expert from Assisting Witness

The court confirms that individuals under investigation have a right to be accompanied by counsel, including an accounting expert of their choosing.

By Daniel Nathan

A D.C. Circuit panel unanimously ruled that the Public Company Accounting Oversight Board (PCAOB) infringed the right to counsel of former Ernst & Young (EY) partner Marc Laccetti by denying his right to bring an accounting expert to an investigative interview. The court held, in the March 23 decision in Laccetti v. Securities & Exchange Commission, that the PCAOB, under its rules, must allow a witness the assistance of an accounting expert at an investigative interview. As a result of that infringement of Lacetti’s right to counsel, which the court said was not “harmless error,” the court vacated the order of the Securities and Exchange Commission affirming the PCAOB’s decision and sanctions.

The PCAOB investigated Laccetti as the partner in charge of an EY audit of financial statements. During an investigative interview, the PCAOB permitted him to be accompanied by an EY attorney, but denied his request to also be accompanied by an accounting expert from EY. The PCAOB explained that it was excluding EY from the testimony because it did not want EY personnel to monitor the investigation. The court found three problems with the PCAOB’s rationale: 1.) an EY employee already was attending the interview—that is, the EY attorney—and therefore the explanation for excluding the EY accounting expert made no sense; 2.) the PCAOB denied Laccetti permission to be accompanied by any accounting expert, whether or not affiliated with EY; and 3.) the board’s rules, providing the right to counsel, should be read to encompass the right to have an expert assist a legal representative during an investigative interview. The court noted that the ability to have expert assistance as part of the right to counsel had long been available under SEC proceedings and other proceedings governed by the Administrative Procedure Act. Nothing in the PCAOB’s rules suggested that the right to counsel they provided should be any narrower than the rights afforded under the APA. The court cited the case SEC v. Whitman, 613 F. Supp. 48, 49 (D.D.C. 1985), which explains the rationale for allowing an accounting expert to attend testimony: 

Given the extraordinary complexity of matters raised in agency investigations in this modern day, counsel trained only in the law, no matter how skillful, may on occasion be less than fully equipped to serve the client in agency proceedings. Unless the lawyer can receive substantive guidance from an expert technician—in this case, an accountant—when he determines in his professional judgment that such assistance is essential, his client’s absolute right to counsel during the proceedings would become substantially qualified.

Thus, the court recognized the value of having expert assistance in representing a witness in investigative testimony. While the court claimed its holding was an “exceedingly narrow” one, it provides important protections to individuals subject to PCAOB investigations, confirming that they have a right to be accompanied by counsel including an accounting expert of their choosing. Moreover, the decision can potentially be cited for the ability to use expert accounting and other types of expert assistance at testimony in investigations conducted by other regulators besides the PCAOB. 

Daniel Nathan is a partner at Orrick in Washington, D.C.

 


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Daniel Nathan – April 12, 2018