The Competitive Enterprise Institute (CEI) and the Free Enterprise Fund on February 7, 2006 launched a constitutional legal challenge to the Public Company Accounting Oversight Board (PCAOB), which was created by Congress as part of the Sarbanes-Oxley Act of 2002.  The case has since reached the U.S. Supreme Court, in 2009, with a decision expected in June, 2010.

Sarbanes-Oxley was rushed into law following a spate of corporate scandals. The PCAOB was then formed to “oversee the audit of public companies that are subject to the securities laws.” In carrying out this mandate, the board exercises broad governmental power, including the power to “enforce compliance” with the Act and the securities laws, to regulate the conduct of auditors through rulemaking and adjudication, and to set its own budget and to fund its own operations by fixing and levying a tax on the nation’s public companies.

The board wields great power over the businesses it regulates, and its regulations and mandates have produced costly and unintended consequences for publicly traded U.S. businesses, entrepreneurs and capital markets. ,Yet it is entirely unaccountable to any elected official. The board’s five members are appointed for five-year terms, not by the President or the head of an executive branch, but by the Securities Exchange Commission (SEC).

The lawsuit alleges, in part, that the PCAOB violates the appointments clause (Article II Section 2) of the U.S. Constitution, which grants the power to appoint high level government officials to the President, the courts, or the heads of departments– not a regulatory commission like the SEC.

The case, Free Enterprise Fund v. The Public Company Accounting Oversight Board, was filed in U.S. District Court for the District of Columbia. Plaintiffs include the Free Enterprise Fund and Beckstead and Watts, LLP.

The Free Enterprise Fund is a Section 501(c)(4) organization based in Washington, DC that advocates pro-growth economic policies, such as tax relief, tax reform, fiscal restraint, and limited government.

Beckstead and Watts, LLP, is a CPA firm headed by G. Brad Beckstead. Mr. Beckstead is a CPA licensed in the state of Nevada since 1995. Beckstead and Watts is a small firm specializing in the audit of US publicly-held companies. The firm has serviced in excess of 100 clients since 1999. Beckstead and Watts, LLP is a member of the American Institute of CPA’s Center for Public Company Audit Firms and is registered with the Public Company Accounting Oversight Board. Before starting the firm Beckstead and Watts, LLP, Mr. Beckstead was Chief Financial Officer of a Las Vegas-based telecommunications company and president of a small consulting firm providing accounting and report writing for small publicly-held companies. Mr. Beckstead is a former staff auditor with the San Francisco, California office of the US national CPA firm Deloitte and Touche, LLP.

Free Enterprise Fund v. The Public Company Accounting Oversight Board

• the complaint (February 2006)
• plaintiff’s motion for summary judgment (July 2006)
  • plaintiff’s memorandum of points and authorities in support of their motion for summary judgment
  • plaintiff’s statement of material facts not in genuine dispute
  • plaintiff’s proposed order on motion for summary judgment
  • plaintiff’s combined reply memorandum in support of motion for summary judgment and memorandum in opposition to defendants” and the United States’ cross-motions for summary judment (September 2006)
• SUPREME COURT CASE (2009-10)
  • Amicus Brief
    • Amicus brief of Law Professors Steven Calabresi, Gary Lawson, et. al
    • Amicus brief of Washington Legal Foundation and former Attorneys General Edwin Messe, Richard Thomburgh, and William Barr
    • Amicus brief of the Center for Individual Rights
    • Amicus brief of Mountain States Legal Foundation
    • Amicus brief of Claremont Institute and Law Professors John Eastman and Karen Lugo
    • Amicus brief of Cato Institute and Professors Larry Ribstein and Henry Butler
    • Amicus brief of Law Professor and former SEC Commissioner Roberta Kamel. Law Professor Donna Nagy, et. al
    • Amicus brief of Coalition for Fair Lumber Imports
    • Amicus brief of American Civil Rights Union

Related reading:

• CEI Issue Analysis: The Public Company Accounting Oversight Board: An Unconstitutional Assault on Government Accountability, by Hans Bader and John Berlau
• Op-ed: Sarbanes-Oxley Accounting Board: An Agency Without Accountability, by Hans Bader
• Memo: Upcoming Supreme Court decision in Sarbanes-Oxley case (June 15, 2010)