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Dec. 7: D-Day for the PCAOB?
The U.S. Supreme Court is scheduled to begin hearing oral arguments in a case that questions the constitutionality of the Public Company Oversight Board (PCAOB) on Dec. 7, according to the Supreme Court docket.
Plaintiffs in the case are small Nevada CPA firm, Beckstead and Watts, LLP, and The Free Enterprise Fund, a free market, limited government advocacy group founded by economist Stephen Moore -- a National Review contributing editor and former fiscal policy studies director at the Cato Institute.
The plaintiffs are challenging the board's legality to regulate and inspect public company accounting and auditing firms.
The suit, originally filed in 2006, charges that the creation and operation of the PCAOB under the Sarbanes-Oxley Act of 2002 violated the appointments clause of the Constitution, the separation of powers principles and non-delegation principles, because it did not permit adequate control of the PCAOB by the U.S. president. The NYSSCPA's newspaper, The Trusted Professional, reported on the court case late last year.
The D.C. circuit court upheld-2-1, the PCAOB's constitutionality in August 2008. However, the plaintiffs successfully appealed to the U.S. Supreme Court.
Questions presented to the Supreme Court:
1. Whether the Sarbanes-Oxley Act of 2002 violates the Constitution's separation of
powers by vesting members of the Public Company Accounting Oversight Board
("PCAOB") with far-reaching executive power while completely stripping the
President of all authority to appoint or remove those members or otherwise
supervise or control their exercise of that power, or whether, as the court of appeals
held, the Act is constitutional because Congress can restrict the President's removal
authority in any way it "deems best for the public interest."
2. Whether the court of appeals erred in holding that, under the Appointments
Clause, PCAOB members are "inferior officers" directed and supervised by the
Securities and Exchange Commission ("SEC"), where the SEC lacks any authority
to supervise those members personally, to remove the members for any policyrelated
reason or to influence the members' key investigative functions, merely
because the SEC may review some of the members' work product.
3. If PCAOB members are inferior officers, whether the Act's provision for their
appointment by the SEC violates the Appointments Clause either because the SEC
is not a "Department" under Freytag v. Commissioner, 501 U.S. 868 (1991), or
because the five commissioners, acting collectively, are not the "Head" of the SEC.