Laccetti v. Securities and Exchange Commission

          Argued December 12, 2017

          On Petition for Review of an Order of the Securities & Exchange Commission

          Douglas R. Cox argued the cause for petitioner. With him on the briefs was Michael J. Scanlon.

          Mark R. Freeman, Attorney, U.S. Department of Justice, and Lisa K. Helvin, Senior Counsel, U.S. Securities and Exchange Commission, argued the causes for respondent. With them on the brief were Mark B. Stern and Jennifer L. Utrecht, Attorneys, U.S. Department of Justice, Michael A. Conley, Solicitor, and Dominick V. Freda, Assistant General Counsel, Securities and Exchange Commission.

          Before: Griffith, Kavanaugh, and Wilkins, Circuit Judges.

          OPINION

          Kavanaugh, Circuit Judge

         The Public Company Accounting Oversight Board investigated an audit that had been conducted by the Ernst & Young accounting firm. The Board's investigation focused in part on Mark Laccetti, who was the Ernst & Young partner in charge of the audit. As part of the investigation, the Board interviewed Laccetti. During that investigative interview, the Board allowed Laccetti to be accompanied by an Ernst & Young attorney. But the Board denied Laccetti's request to also be accompanied by an accounting expert who would assist his counsel.

         The Board ultimately charged Laccetti and found that he had violated Board rules and auditing standards. The Board sanctioned Laccetti, suspending him from the accounting profession for two years and fining him $85, 000. The Securities and Exchange Commission affirmed the Board's decision.

         Laccetti asks this Court to vacate the orders and sanctions against him. Laccetti contends that the Board infringed his right to counsel by unreasonably barring the accounting expert from assisting his counsel at the interview. We agree. We grant the petition for review, vacate the order of the Securities and Exchange Commission, and remand with directions that the Commission vacate the Board's underlying orders and sanctions.

         * * *

         Congress has mandated that Board investigations use "fair procedures." 15 U.S.C. § 7215(a). Implementing that statute, the Board's Rule 5109(b) provides: "Any person compelled to testify" in a PCAOB investigative interview "may be accompanied, represented and advised by counsel . . . ." Rule 5102(c)(3) further allows the Board to limit attendance at the interview to "(i) the person being examined and his or her counsel . . . and (iv) such other persons as the Board . . . determine[s] are appropriate . . . ."

         Laccetti argues that the Board, in applying the rules, unlawfully barred an accounting expert from assisting Laccetti's counsel at the investigative interview. The Board 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. That was the sole reason provided by the Board for denying Laccetti's request.

         The Board's rationale suffers from three independent flaws.

         First, the arbitrary and capricious standard requires that an agency's action be reasonable and reasonably explained. Here, the Board's explanation for ...