The SEC removed William D. Duhnke III from the Public Company Accounting Oversight Board ("PCAOB"), and directed the Office of the Chief Accountant to solicit applications for candidates to all five of the board positions. The SEC named Duane M. DesParte as Acting Chair. Mr. DesParte served as a member of the PCAOB since April 2018.

SEC Chair Gary Gensler stated that with this action, "the PCAOB has an opportunity to live up to Congress's vision in the Sarbanes-Oxley Act."

SEC Commissioners Hester M. Peirce and Elad L. Roisman expressed serious concerns about the SEC's removal of a PCAOB member without cause and Chair Gensler's stated intention to replace all of the Board members. In their public statement, Ms. Peirce and Mr. Roisman said that these actions set a "troubling precedent," one in which a new administration triggers a complete change in the leadership of the PCAOB, notwithstanding that the Sarbanes-Oxley Act provides for the PCAOB members serving staggered terms.

Senator Elizabeth Warren (D-MA) tweeted that the decision was "[a]bsolutely the right move." She said: "William Duhnke was a Trump crony who undermined the PCAOB's work. Our auditing process needs to be independent and with integrity. Let's replace the other members with people who live up to the agency's mission."

In a press release, U.S. Senate Banking Committee Ranking Member Pat Toomey (R-RA) stated that "the unwarranted firing of Chairman Duhnke . . . is unprecedented and deeply troubling. SEC Chairman Gensler appears to have caved to the demands of liberal political activists. It's hard not to infer from this that Chairman Gensler intends to politicize the previously apolitical PCAOB."

Commentary Steven Lofchie

The SEC's action dismissing Chair Duhnke and Chair Gensler's intention to replace the entire PCAOB board are notable in at least three respects.

First, and as a practical matter, the SEC's change in PCAOB leadership will most likely result in a significant increase in enforcement actions against accounting firms and individual accountants. That accountants may be targeted more aggressively in enforcement actions will certainly have an impact on the relationship between accountants and issuers.

Second, the SEC's action is clearly in contravention of the spirit of the Sarbanes-Oxley provisions establishing the PCAOB. Sarbanes-Oxley, as adopted, provided that the five PCAOB directors could be dismissed only for cause and that the directors' terms would be staggered with a single director's term expiring each year. In their statement, the Republican Commissioners conceded that, by virtue of a subsequent Supreme Court holding, the SEC does have authority to remove any or all of the directors without cause. But the SEC using its power to change the full board in one burst treats the staggered term provision of Sarbanes-Oxley as being of no consequence.

Third, this is the second time in just a few days that the two Republican Commissioners issued statements criticizing moves by Chair Gensler or the SEC's Democratic majority for taking actions outside of the ordinary process. See SEC Chair Gary Gensler Directs Staff to Reconsider Proxy Rule Changes; Republican Commissioners Dissent.

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