This seems like ages ago but back in October 2019, the Wall Street Journal revealed what was written in a one-page whistleblower complaint—written by a group of current and former PCAOB employees—that alleged some serious problems going on at the PCAOB under chairman William Duhnke, a Republican who was appointed to that role in December 2017.
If you don’t remember, let me refresh your memory:
A watchdog tasked with protecting investors by policing audits of public companies has slowed its work amid board infighting, multiple senior staff departures, and allegations that the chairman has created a “sense of fear,” according to a whistleblower letter and people familiar with the situation. …
Within months of arriving, Mr. Duhnke began pushing out longtime senior executives, according to the whistleblower letter and people familiar with the matter. The former executives, who included the board’s general counsel and its director of inspections, agreed to sign nondisparagement agreements in exchange for six months of continued compensation, the people said. …
The whistleblower letter said the regulator “is permeated by a sense of fear,” due to “the numerous terminations … [some] driven by retaliation.”
So it’s not really a shock that Duhnke and the PCAOB have been named defendants in a wrongful termination lawsuit filed in the District of Columbia on April 12 by the audit regulator’s former chief administration officer who claims Duhnke “perpetrated a xenophobic and racist campaign” against her because of “her Asian ethnicity, Chinese national origin, and political affiliation with the Democratic Party in violation of the D.C. Human Rights Act.”
Sue Lee, who was fired by the PCAOB on Oct. 23, 2020, claims in her suit that once the COVID-19 outbreak hit the U.S. last spring, Duhnke “began exhibiting increasingly discriminatory behavior” toward her due to her Chinese ethnicity and national origin.
The lawsuit alleges:
Specifically, Mr. Duhnke regularly referred to the ongoing COVID-19 pandemic as the “kung flu” and the “Chinese flu” within Ms. Lee’s presence.
During this time period, Mr. Duhnke also began making frequent remarks to Ms. Lee and other PCAOB employees about Ms. Lee’s Chinese ancestry and birth overseas.
The abrupt change in Mr. Duhnke’s treatment of Ms. Lee coincided with the initial outbreak of the coronavirus in the United States – an event which Mr. Duhnke appeared to blame upon the Chinese population and foreign nationals at large.
Mr. Duhnke mocked Ms. Lee for wearing a mask in the office and drew similarities to Chinese Communist Party leaders wearing masks after causing the coronavirus.
Mr. Duhnke repeatedly directed Ms. Lee to remove her mask whenever she spoke to him in PCAOB’s DC headquarters over Ms. Lee’s protests and in violation of then-applicable health and safety advisories.
In September of 2020, upon seeing some Chinese-language journals outside Ms. Lee’s office in Washington, D.C., Mr. Duhnke asked several of Ms. Lee’s direct reports, as well as PCAOB’s security team, whether “some Chinese national snuck Chinese propaganda into the office.”
Mr. Duhnke’s frequent use of insensitive nomenclature with respect to the pandemic and his ongoing remarks to Ms. Lee and her colleagues about Ms. Lee’s Chinese ancestry caused Ms. Lee emotional distress, and made her increasingly uncomfortable in PCAOB’s workplace.
Lee also claims Duhnke unfairly targeted her after he discovered that she was a Democrat and supported the Black Lives Matter movement. She alleges that Duhnke wanted to replace liberal PCAOB employees with people who are more conservative.
And she claims Duhnke called the PCAOB “a frivolous organization” that should be combined with the SEC, something President Trump recommended in his administration’s budget proposal for fiscal 2021.
Lee, a veteran compliance and risk advisory attorney who has served as general counsel or corporate counsel for several companies, was named the PCAOB’s first-ever chief risk officer in February 2019 and was tasked to head the new Office of Enterprise Risk Management. She was promoted to acting chief administration officer in July of that year and reported directly to Duhnke.
As CAO, Lee oversaw the daily operations of the PCAOB at its D.C. headquarters and its regional and satellite offices, which necessitated her having to travel to these sites, including Boston, where she recommended the PCAOB move its office there to a more affordable suburb in the Boston area, according to the suit.
The lawsuit states that in December 2019 Duhnke praised Lee’s performance as acting CAO and she received “an exemplary performance review.” She also received a discretionary bonus and the PCAOB removed “acting” from her job title at the end of 2019.
In February 2020, the PCAOB decided to close five satellite office, including the recently opened Boston-area office, and transitioned all affected employees to full-time work from home. The lawsuit states that Lee had to “regularly travel to the Boston area to oversee the closure” of that office space. She says all travel to Boston was approved by the PCAOB and was reported to Duhnke.
But then the Rona happened, Duhnke’s demeanor toward Lee allegedly changed because she was Chinese and a Democrat, and on Oct. 19, 2020, Lee “suddenly lost access to her PCAOB work email and cellphone without any advance notice or explanation provided by PCAOB,” the suit states. When Lee finally got a hold of Duhnke to ask “WTF is going on?” (presumably), Duhnke told her she was being suspended immediately due to charges of misconduct that had been leveled against her.
The lawsuit alleges:
Mr. Duhnke further asserted that PCAOB was compiling a report detailing the nature of these charges, and that Ms. Lee would have the opportunity to review and respond to this report when it was complete.
However, Ms. Lee received no further contact from PCAOB over the following four days, and was never provided with a copy of PCAOB’s report or an opportunity to respond to such.
On October 23, 2020, Mr. Duhnke telephoned Ms. Lee and informed her that her employment with PCAOB was terminated effective immediately.
Upon Ms. Lee’s protest, Mr. Duhnke cited her travel to the Boston area, which he described as “ridiculous,” and incorrectly asserted that she had made 36 trips to the Boston offices that year.
Mr. Duhnke’s attempts to justify the Defendants’ termination decision upon Ms. Lee’s travel to the Boston area were misplaced, because all such travel was necessitated by her duties as PCAOB’s CAO, approved by the organization beforehand, and reported to Mr. Duhnke.
When Ms. Lee corrected Mr. Duhnke with respect to her travel, and requested a copy of the investigative report to which he had referred during their prior conversation, Mr. Duhnke refused to turn the report over, and pivoted on his basis for her termination by stating that Ms. Lee was an at-will employee and could be terminated at any time without reason.
In a statement to Compliance Week, a PCAOB spokesperson called the lawsuit “baseless” and said the PCAOB expects to file “one or more counterclaims against Ms. Lee.” Lee is seeking back pay and damages as part of her lawsuit against the PCAOB and Duhnke.
You can look through the lawsuit in its entirety here: