Regulatory Personhood: The Elixir For Redundancy Between the SEC and the PCAOB

Authors

Sarah J. Williams

Document Type

Article

Abstract

(Excerpt)

This Article analyzes enforcement activity against public company auditors during the agencies’ coexistence for the purpose of unmasking the alleged villainous duplication, budgetary waste, and agency in-fighting that was purportedly created by Congress when it endowed the PCAOB with enforcement powers already existing in the SEC’s arsenal. The Article examines enforcement cases brought by the SEC and the PCAOB against accounting firms and accountants associated with such firms that relate to poor performance in conducting public company audits during the period in which both agencies were in existence. Such research bears upon the effectiveness of the current system of auditor oversight and informs future efforts to clone this regulatory structure in other areas of securities regulation. Regulatory overlap has, in particular instances, led to deleterious effects. For example, the Department of Justice and the Federal Trade Commission have publicly clashed in the area of antitrust law enforcement. This Article finds no evidence of ineffective duplication of enforcement efforts that would be symptomatic of in-fighting between the SEC and the PCAOB. In fact, it identifies a synergistic allocation of disciplinary activity regarding regulated auditors. This Article asserts this relationship works well because the SEC has a widely recognized proprietary interest in particular enforcement cases, described herein as regulatory personhood, that endows it with a right to exclude its audit co-regulator from such cases. Regulatory personhood nullifies competitiveness and political agenda promotion that would otherwise exist as an output of corporate action theories. This Article employs property law theory as a legal implement to allocate shared enforcement authority effectively between agencies.

This Article proceeds in five parts. Part I explores the allocation of regulatory responsibility for policing auditors of public companies, both before and after the passage of the Sarbanes-Oxley Act of 2002. Part II analyzes SEC and PCAOB enforcement activity with respect to public company audit performance during their co-existence. It identifies a system of complementary, not duplicative, enforcement pursuits. Part III discusses legal theory relating to the effective exercise of enforcement authority, and the implications of overlapping jurisdiction. Part IV identifies regulatory personhood as a component of oversight that counteracts the potentially deleterious effects of shared regulatory responsibility between the Board and the SEC. Part V warns that regulatory personhood promotes efficiency in enforcement activity, but produces adverse collateral effects that impact other aspects of auditor oversight.