[JURIST] A three-judge panel of the US Court of Appeals for the District of Columbia Circuit [official website] ruled [opinion, PDF] in a 2-1 decision Friday that provisions in the Sarbanes-Oxley Act of 2002 [PDF text] establishing the Public Company Accounting Oversight Board (PCAOB) [official website] are constitutional. In 2006, the Free Enterprise Fund, a non-profit public interest organization promoting economic growth, lower taxes, and limited government, and a Nevada accounting firm, Beckstead and Watts, LLP [corporate website], challenged [JURIST report] certain portions of the legislation alleging that it violated separation of powers doctrine because it did not give the President sufficient control over the agency. The Court majority wrote:
In appellants view this statutory scheme vests Board members with far reaching executive power while completely stripping the President of the authority to appoint or remove those members or otherwise supervise or control their exercise of that power. Appellants Br. at 1. But their facial challenge ignores the entirety of the statutory scheme and runs afoul of the Supreme Courts instruction regarding the nature of the Presidents constitutional relationship with independent administrative agencies. Supreme Court precedent as we have it does not support appellants singular focus on removal powers as the be-all and end-all of Executive authority, but rather compels a more nuanced approach that examines the myriad means of Executive control.In 2007, the US District Court for the District of Columbia granted summary judgment [opinion, PDF] in favor of the PCAOB, finding that the plaintiffs' facial challenge failed to establish that no set of circumstances could exist under which the Act would be valid. Beckstead has said that it will either appeal the ruling to the US Supreme Court or attempt to have another hearing before the full panel of the appeals court. Bloomberg has more. The Washington Post has additional coverage.
We hold, first, that the Act does not encroach upon the Appointment power because, in view of the Commissions comprehensive control of the Board, Board members are subject to direction and supervision of the Commission and thus are inferior officers not required to be appointed by the President. Second, we hold that the for-cause limitations on the Commissions power to remove Board members and the Presidents power to remove Commissioners do not strip the President of sufficient power to influence the Board and thus do not contravene separation of powers, as that principle embraces independent agencies like the Commission and their exercise of broad authority over their subordinates. Accordingly, we affirm the grant of summary judgment to the Board and the United States.
Consistent with the overall purpose of Sarbanes-Oxley, the PCAOB was created in response to the collapse of Enron and the other corporate fraud scandals [JURIST news archives] that made headlines in 2002. The five-member PCAOB is appointed and overseen by the Securities and Exchange Commission (SEC) [official website].