Peek-a-boo, I See a Challenge to Sarbanes-Oxley in the Supreme Court

An intriguing case that alleges a high-profile violation of the president’s exclusive power to appoint and remove government officials is winding its way through the courts. Free Enterprise Fund v. Public Company Accounting Oversight Board challenges the constitutionality of a key part of the Sarbanes-Oxley Act.

Congress passed Sarbox, as the law is called, in the wake of the Enron and WorldCom scandals to protect investors from shoddy accounting practices perceived as being rife in publicly traded companies. (We now know that Sarbox’s regulatory burden costs the economy much more than the fraud it prevents and detects, but never mind.) Among other things, the law created the Public Company Accounting Oversight Board — PCAOB, pronounced “peek-a-boo” — a private board exercising government power. Its members are not appointed by the SEC, which has limited removal power. In short, the president has neither any appointment nor removal power, in seeming violation of Article II, section 2 of the Constitution.

[Cross-posted from Cato's blog.]

On Monday, the D.C. Circuit, now consisting of nine members after Judge Raymond Randolph took senior status as of November 1, split 5-4 in denying en banc review of a panel decision in the government’s favor. Judges Janice Rogers Brown, Merrick B. Garland, Karen LeCraft Henderson, Judith W. Rogers, and David S. Tatel voted against rehearing while Chief Judge David B. Sentelle and Judges Douglas H. Ginsburg, Thomas B. Griffith and Brett M. Kavanaugh supported it. Interestingly, the three Clinton appointees and one George H. W. Bush appointee voted in the majority, while both Reagan and two of the three George W. Bush appointees dissented. The other George W. Bush appointee, Judge Brown, who is considered to be the most libertarian (she gave the B. Kenneth Simon Lecture at Cato’s 2007 Constitution Day conference) but also the most inscrutable, turned out to be the wild card. (But she won’t be the swing vote for long because President Obama will have two vacancies to fill on the court.)

Lawyers for the Free Enterprise Fund, who include our friends at the Competitive Enterprise Institute, had earlier indicated that if they failed to get en banc review, they would seek certiorari in the Supreme Court. The narrow split in the D.C. Circuit probably enhances the chance that the justices would agree to hear the case, except that the Court this year has shown a reluctance to take on especially newsworthy (i.e., both controversial and significant) constitutional cases.