This morning at the Supreme Court, the federal government argued for the continued existence of the Public Company Accounting Oversight Board (PCAOB, pronounced peek-a-boo) – and by extension the nefarious financial regulatory scheme known as Sarbanes-Oxley. Cato filed a brief supporting a free market advocacy group and an accounting firm, who sued PCAOB for violating both the Appointments Clause and general constitutional separation-of-powers principles.
Passed with scant deliberation in the wake of the Enron and WorldCom scandals, the Sarbanes-Oxley Act of 2002 established PCAOB to oversee the accounting practices of the nation’s public companies. As my piece with Cato legal associate Travis Cushman details today, PCAOB enjoys the rare authority to make its own laws, collect taxes, inspect records, prosecute infractions, make judgments, and impose sanctions.
Traditionally, independent agencies that serve such executive functions must be accountable to the president. PCAOB members, however, may only be removed “for cause” by members of the Securities and Exchange Commission, who in turn may only be removed “for cause” by the president. I previously blogged about the case, Free Enterprise Fund v. PCAOB, here, here, and here.
As far as how the argument went, I think the forces of limited constitutional government have eked out a 5-4 victory. Justices Ginsburg, Breyer, and Sotomayor were extremely hostile to the challengers’ argument, while the Chief Justice and Justices Scalia and Alito were supportive. (Scalia at one point joked that he had no less power than the president – meaning not very much – to influence PCAOB.) Justice Stevens only spoke up once but seemed to show a leaning towards the government position. Justice Thomas, while remaining silent, can be expected to support the view of D.C. Circuit Judge Brett Kavanaugh – whose blistering yet scholarly dissent likely prompted the Court to take up the case.
And so the ruling rests, as often happens with the most interesting cases, on the shoulders of Justice Kennedy. I remain cautiously optimistic that Kennedy will decide to uphold constitutional checks and balances and strike down what has become an unholy new branch of government.
Two curious notes from the argument: 1. Petitioners’ counsel Michael Carvin referenced Cato’s brief in discussing PCAOB’s overreach internationally – seeking to regulate even foreign accounting standards – without oversight from the State Department or the SEC, let alone the president; 2. PCAOB brought its own lawyer to argue alongside the solicitor general, begging the question: if PCAOB is subservient to the SEC and/or the president, why does it need its own counsel to represent its own views?