Washington, D.C., November 20, 2008—The notorious tobacco Master Settlement Agreement (MSA) was signed 10 years ago this month by 46 state attorneys general and major tobacco companies. The deal imposed a $250 billion hidden tax on smokers and set up a cartel between the states and Big Tobacco, all without any elected official openly taking responsibility.

A new video by the Competitive Enterprise Institute re-imagines the backroom deal.

CEI is challenging the tobacco settlement in federal district court, on the grounds that states failed to get Congress to approve the deal. Article I, Section 10 of the U.S. Constitution forbids states to enter into compacts with one another without the consent of Congress.

“The tobacco Master Settlement Agreement is a corrupt, unconstitutional agreement between state attorneys general and Big Tobacco,” said Sam Kazman, CEI General Counsel. “It represents the highpoint of using lawsuits and settlement agreements to impose new taxes and regulations on citizens, and it should be halted by the courts.”

In the 1990s, state attorneys general launched massive, unprecedented lawsuits against major tobacco companies, claiming the companies owed the states for the past costs of treating sick smokers. The tobacco “Master Settlement Agreement” was signed in November 1998 by 46 state attorneys general and major tobacco companies. Four states reached separate settlement agreements.

Read more about the tobacco Master Settlement Agreement.

View CEI’s list of the Ten Worst State Attorneys General.

Washington, D.C., November 19, 2008—On a 5 to 4 split, the U.S. Court of Appeals for the D.C. Circuit this week declined to review a constitutional challenge to the Public Company Accounting Oversight Board. The Competitive Enterprise Institute, together with the law firm of Jones Day, plans to appeal the case to the U.S. Supreme Court.

“While the court’s decision is, of course, disappointing, the 5-4 split among the judges demonstrates that this is an extremely important issue. We are hopeful that the Supreme Court will accept this case for review,” said Sam Kazman, CEI General Counsel.

The plaintiffs are challenging the constitutionality of the PCAOB on the grounds that the Board violates the Appointments Clause of the Constitution, which requires that major officers be appointed by the President with the advice and consent of the Senate. The Board’s members were selected by the Securities and Exchange Commissioners acting as a body, rather than by the President or by the SEC’s chairman. This avoided the individual accountability that the Framers viewed as crucial to reining in government.

Plaintiffs had requested a rehearing by the full court after three-judge panel in August rejected this argument, in a 2-1 decision, saying 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.”

The vote in this week’s decision to deny the petition for rehearing en banc was extremely close. Of the 9 participating judges, 4 voted for rehearing.

The plaintiffs in the case are the Free Enterprise Fund and Beckstead & Watts, a small Nevada accounting firm that was being investigated by the Board They are represented by Jones Day and CEI.

Read more about the Sarbanes-Oxley Act.

Federal Accounting Board Itself Unaccountable

Washington, D.C., April 15, 2008—Today, as Americans scurried to get their tax forms into the IRS, the D.C. Circuit Court of Appeals heard arguments about another agency that can impose big fines and reams of paperwork on small businesses. The very structure of this agency makes the IRS look like a model of accountability, the Competitive Enterprise Institute and others argued in court.

The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board, giving it authority to set accounting standards, impose its own set of taxes, and open investigations of accounting firms big and small. Yet unlike counterparts wielding similar authority, such as the IRS commissioner and Federal Reserve governors, PCAOB members are never vetted by the President or by the Senate, as neither of these bodies have a say in who will be appointed.

In today’s oral argument in Free Enterprise Fund v. PCAOB, attorneys for the Jones Day law firm and for the Competitive Enterprise Institute asked a three-judge panel – consisting of the Hon. Brett Kavanaugh, Judith Rogers, and Janice Rogers Brown – to declare the PCAOB unconstitutional under the Appointments Clause of the U.S. Constitution. This clause requires that officers of the United States, wielding the authority the PCAOB does, be appointed by the president and confirmed by the Senate. This process helps ensure agencies remain accountable to elected officials and ultimately the American people.

The PCAOB’s interpretation of Sarbanes-Oxley’s section 404 has cost public companies more than $35 billion a year and has proved especially burdensome to smaller public companies. Bipartisan critics have observed that the PCAOB standards have burdened firms with minutiae while overlooking many of the practices that led to the subprime shenanigans.

As accounting issues become of increasing importance to the electorate, it’s imperative that the PCAOB be accountable to elected officials. “Next year – whether it’s President McCain, President Clinton, or President Obama – America’s new president should not be faced with a powerful government body that lacks accountability to them and members of Congress,” says John Berlau, director of CEI’s Center for Entrepreneurship. “Unaccountable government makes the American people the ultimate losers.”

For more background on the legal issues underlying today’s arguments, see CEI’s study: The Public Company Accounting Oversight Board: An Unconstitutional Assault on Government Accountability by John Berlau and Hans Bader.