The Public Company Accounting Oversight Board (PCAOB) announced a new slate of leaders this week, marking the capstone to one of the wildest runs of corporate capture, corruption, graft, and drama in the Trump-era federal bureaucracy.
It is not an especially satisfying capstone. The names put forward by Securities and Exchange Commission (SEC) Chair Gary Gensler, whose agency oversees the PCAOB, place a BigLaw alumna in charge of the agency, in her first full swing through the revolving door. This is unusual for Gensler, who has generally been one of the strongest opponents of Wall Street capture in both the Obama and Biden administrations.
Gensler appears to have backed down from a full fight with Republicans on the SEC and in Congress. This is likely because Gensler needs to pick his battles, of which there are many. But in times as dire as these, choosing to let certain grifts carry on as normal is an ominous call.
First, let’s go over some backstory. PCAOB—nicknamed “peekaboo” by insiders for reasons that must make sense to them—was established in 2001 after a series of accounting scandals (remember Enron?). It was supposed to be a watchdog for the auditing firms of public companies, to ensure truthfulness in financial reporting to investors and the public. By design, it reflected the neoliberal assumptions of the time, most especially that government is best run like a business. PCAOB board members receive the highest salaries in the federal government, in hopes of attracting industry executives to public service. In fairness, cleaning up the asset bubbles enabled by shoddy accounting tends to be far costlier for taxpayers than a handful of cushy salaries.
But the board’s many failings speak to some of the problems with its design assumptions. From 2003 to 2019, the PCAOB only brought 18 cases against the Big Four auditing firms, which together serve 100 percent of publicly traded Fortune 500 companies. That’s not because the Big Four are model companies. Quite the opposite—the PCAOB itself has found at least 808 audits by these companies to be so riddled with errors that they are effectively worthless.
All of this was before the most recent problems started. As the Prospect’s David Dayen reported, in 2017 Trump’s SEC chair, Jay Clayton, fired all of the PCAOB’s leadership in the wake of an admittedly ugly leaking scandal. Clayton replaced then-Chair James Doty with William Duhnke, who had no experience at all in accounting or finance. He instead was an aide to Republican Sen. Richard Shelby, whose ex-staffers are peppered across a broad range of regulatory agencies with often corrupt results.
Duhnke turned PCAOB into a personal fiefdom. Career staffers were fired or resigned under non-disparagement agreements. Inspector reports plummeted. Duhnke and his cohorts sat back and soaked up their best-in-their-class salaries while signaling to auditors that their watchdog was proudly asleep, and would only bark at those trying to wake it up.
But Duhnke overplayed his hand. In May, Sens. Bernie Sanders and Elizabeth Warren sent a letter calling on Gensler to replace Duhnke and his enablers with new regulators committed to the public interest. (The Revolving Door Project called for the same a few weeks before the senators.) Gensler took their advice in June, only keeping one member, Duane DesParte, on as interim chair. Since then, onlookers have waited to see what direction Gensler would take with his fresh slate at the agency.
As has become a pattern in the Biden administration’s personnel choices, progressives do have a seat at the new PCAOB table—but just one seat. Gensler tapped former SEC Commissioner Kara Stein, a Warren ally with a solid record of scrutinizing the financial industry. For continuity’s sake, DesParte also returned. Rounding out the bench are Christina Ho and Tony Thompson. Thompson is a career civil servant, having spent a decade regulating the derivatives industry—exactly the sort of background that fits the position. Ho has had jobs at Treasury and as a college administrator, but most recently worked in data analytics for machine-learning and artificial-intelligence firms.
But naturally, most of the attention is on Erica Williams, the incoming chair of an organization facing the deepest legitimacy crisis of its short, ineffective history. Williams, the first Black woman to lead the agency, spent her early career at the SEC’s enforcement unit, where she handled cases arising out of the 2008 financial crisis. That’s better than beginning one’s career in corporate law, but famously, almost no one was held accountable for the crisis, and the same banks that violated securities laws are bigger and more powerful than ever. In other words, Williams’s formative career experience involved letting a lot of criminals off the hook.
Williams rose through the ranks to serve as a deputy chief of staff to several SEC chairs—which again sounds encouraging until you remember who the chairs were during that time. Williams worked for Obama SEC Chair Mary Jo White, the Platonic ideal of a revolving-door figure whose tenure at the agency was marked by waiving cases, allowing settlements without admissions of guilt, and never fully implementing key Dodd-Frank reforms. White frequently recused herself from SEC business since her husband was one of Wall Street’s go-to lawyers for defending against the securities violations the SEC enforces. She now runs her old firm’s white-collar criminal defense practice, and in her spare time represents the Sacklers, the family most responsible for the opioid crisis.
It would be one thing if Williams took a lesson not to follow in White’s footsteps. Instead, she left the SEC in 2017 for BigLaw firm Kirkland & Ellis, where she has been a partner in the Government, Regulatory & Investigations Group, i.e. the white-collar criminal defense practice. There, Williams has written guidances to help corporations handle everything from private equity whistleblowers to “reputational and legal exposure from #MeToo issues.” Amusingly, she cautioned her colleagues in a Bloomberg Law interview last December that the Biden administration might see an uptick in white-collar criminal enforcement.
Kirkland isn’t just another BigLaw firm. The Revolving Door Project and People’s Parity Projectfound that it represents a slew of private equity firms, maintains a powerful antitrust practice, is a favorite call for fossil fuel firms facing class action lawsuits, and is the firm that secured Jeffrey Epstein his sweetheart deal after being found guilty of sexual abuse of minors.
Kirkland also has particularly strong relationships within movement conservatism. Supreme Court Justice Brett Kavanaugh got his start at Kirkland, recruited by the notorious Ken Starr. Other Kirkland alums include conservative legal guru Robert Bork and Patriot Act architect Viet Dinh. Kirkland attorneys represent Fox News and the Murdoch family. In 2016, Kirkland bought the D.C. firm Bancroft, which advocated for the Defense of Marriage Act, South Carolina voter ID laws, and Arizona’s “papers, please” immigration law.
This is not to say that Williams is some secret right-winger. However, it is interesting that at the dawn of the Trump administration, she moved not just into BigLaw, but into arguably the single most Trump- and Republican-friendly BigLaw firm.
The Williams pick is a surprise coming from Gensler. He was the fiercest financial regulator of the Obama era, and has already led a slew of excellent reforms in his new post at the SEC. Most likely, Gensler figured it wasn’t worth spending precious political capital on a fight with Congress over the PCAOB. His initial firing spree in the spring caused predictable hissy fits from ranking Republicans in the Senate and House Finance Committees: How very partisan of him, to sweep out corrupt officials who all happen to be Republicans!
Installing a PCAOB chair straight out of BigLaw is most likely an effort at getting this issue off of his plate, so he can get back to everything from climate finance to cryptocurrency regulation. But Williams is a particularly worrisome pick, raising the question of whether pleasing those establishment political figures really required appointing someone so unlikely to reorient the PCAOB toward actually fulfilling its critical mission. Indeed, the success of Gensler’s other initiatives will ultimately depend in large part on the practices of the accounting firms Williams is set to regulate.
It’s certainly possible that Williams will exceed expectations and bring the agency into a bright new era. Let’s hope that she does. When publicly traded firms lie on their audits and disclosures, it’s mom-and-pop retail investors who suffer the most. Most of them have never heard of the PCAOB, nor have any interest in the intricacies of auditing (and why should they?). As huge numbers of bubbles await popping across the economy, we’ll have to trust that a Kirkland & Ellis alumna has their best interests at heart.
PHOTO CREDIT: “CMI 101: Demystifying Derivatives with CFTC Chairman Gary Gensler” by Third Way is licensed under CC BY-NC-ND 2.0