The Public Company Accounting Oversight Board, under its current rules, must allow a witness the assistance of an accounting expert when such an expert could assist counsel at an investigative interview, the US Court of Appeals for the District of Columbia decided on March 23 in the case of Mark E. Laccetti v. Securities and Exchange Commission on petition for review of an order of the SEC. The Court suggested the PCAOB could have required that such an accounting expert not be affiliated with Mr. Laccetti’s firm. They concluded that this exclusion was not a harmless error, pointing out that the SEC had conceded that the PCAOB’s decision to institute proceedings against Mr. Laccetti “may have been based in part upon his investigative testimony.”

The case goes back to the PCAOB’s instituting disciplinary proceedings on October 20, 2009 alleging violations of PCAOB rules and auditing standards by Mark E. Laccetti, CPA, who was the engagement partner for Ernst & Young’s audit of the financial information of Taro Pharmaceutical U.S.A., Inc., for the year ending December 31, 2004. The hearing officer issued the initial decision on April 20, 2011 and imposed a six-month suspension from association with any registered public accounting firm and a $25,000 civil penalty for the violations found, and otherwise dismissed the case against Mr. Laccetti. He petitioned the PCAOB for review of the case and on January 26, 2015 they found he had failed to exercise due professional care and barred him from associating with a registered public accounting firm for two years and ordered him to pay an $85,000 civil penalty. Mr. Laccetti took his case to court asking that the orders and sanctions against him be vacated as the PCAOB had infringed on his right to counsel by unreasonably barring the accounting expert from assisting counsel at the interview.

The Appeals Court noted: “The Board [PCAOB] stated that it denied Laccetti’s request because Laccetti’s expert was employed at Ernst & Young. The Board did not want Ernst & Young personnel present for the testimony of the Ernst & Young witnesses because it apparently did not want Ernst & Young personnel to monitor the investigation.“ The Court pointed out: “Given the presence of the Ernst & Young attorney at the interview, the Board’s rationale for excluding the Ernst & Young accounting expert – that the Board did not want Ernst & Young personnel to be present – makes no sense here.”

The Appeals Court granted Mr. Laccetti’s petition for review, vacated the SEC’s order and remanded with direction that the SEC vacate the PCAOB’s underlying orders and sanctions. They concluded: “the only reasonable remedy is for the Board [PCAOB], if it chooses and if the law otherwise permits, to open a new disciplinary proceeding against Laccetti and, if it chooses to re-interview Laccettti, to do so without violating his right to counsel. The right to counsel is guaranteed by the Board’s rules.”

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