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Saturday, August 23, 2008

Courts - Sarbanes-Oxley Upheld By Court as Not Violating Separation of Powers

A very interesting administrative law / separation of powers decision yesterday, of which we will not have heard the last. Here, from a story by David S. Hilzenrath in the Washington Post:

The plaintiffs in the lawsuit argued that the Sarbanes-Oxley Act violated the constitution's separation of powers by investing the Public Company Accounting Oversight Board with governmental authority while insulating it from presidential supervision and control. They also argued that the act subverted the president's power over appointments by having PCAOB members appointed by majority vote of the Securities and Exchange Commission.

Defenders of the Sarbanes-Oxley Act said in a court filing that the case against the law was tantamount to an assault on independent agencies -- a reference to such long-established regulators as the SEC, the Federal Trade Commission and the Federal Communications Commission, which are not directly controlled by the president.

Writing for the appeals court panel's majority, Judge Judith W. Rogers said the plaintiffs lost the bulk of their case more than 70 years ago when the Supreme Court upheld the constitutionality of independent agencies. In addition, the SEC, whose members are nominated by the president and confirmed by the Senate, has broad authority over the board, including the power to change its rules, limit its operations and block any sanctions it proposes against auditors, she said.

The Sarbanes-Oxley Act "vests a broad range of duties" in the accounting oversight board, but the board's "exercise of those duties is subject to check" by the SEC "at every significant step," Rogers wrote. She was joined in the majority by Judge Janice Rogers Brown.

In an impassioned dissent, Judge Brett M. Kavanaugh wrote that the Sarbanes-Oxley Act renders the PCAOB "unaccountable and divorced from Presidential control to a degree not previously countenanced in our constitutional structure."

Here is the 92-page opinion (including a 58-page dissent) in Free Enterprise Fund v. Public Company Accounting Oversight Board. See also this informative entry yesterday in the The Blog of Legal Times.

Posted by Marcia Oddi on August 23, 2008 01:09 PM
Posted to Courts in general