Dissent Finds Constitutional Violations

Washington, D.C., August 22, 2008— In a 2-1 decision, the U.S. Court of Appeals for the D.C. Circuit today rejected a constitutional challenge to the Sarbanes-Oxley Public Company Accounting Oversight Board. The challenge had been brought by the Free Enterprise Fund and Beckstead & Watts, a small Nevada accounting firm that was being investigated by the Board.

The plaintiffs claimed that the Board violated the Appointments Clause of the Constitution, because the Board’s members were selected by the Securities and Exchange Commissioners acting as a body, rather than by the President. They argued that this resulted in a lack of the individual accountability that the Framers viewed as crucial to reining in government.

The majority rejected this argument, ruling that the SEC had adequate power to supervise the Board. In a lengthy dissent, Judge Brett M. Kavanaugh argued that the Board’s structure violated both the President’s appointment and removal powers, and was contrary to previous Supreme Court rulings on the issue. He characterized it as “the most important case” on the issue “in the last 20 years.”

Sam Kazman, general counsel for the Competitive Enterprise Institute and one of the attorneys in the case, stated: “The Accounting Board has acted in a manner befitting an unconstitutionally structured agency, imposing incredibly excessive regulations on the American economy.” While the lengthy decision was still being analyzed, a petition for rehearing by the full circuit court is likely.