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Washington, D.C., June 3, 2010—The U.S. Supreme Court will soon hand down a major ruling which could put much-needed constitutional limits on an agency that imposes incredibly burdensome accounting requirements on American companies.
The case, Free Enterprise Fund v. Public Company Accounting Oversight Board, challenges the constitutionality of the Sarbanes-Oxley corporate accounting law, which since 2002 has imposed massive burdens on businesses, entrepreneurs, and investors, with costs passed along to consumers. A decision from the Supreme Court is expected imminently, possibly next week.
The petitioners in the case, the nonprofit Free Enterprise Fund and the small Nevada accounting firm of Beckstead & Watts, contend that the Public Company Accounting Oversight Board (PCAOB), which was established under Sarbanes-Oxley, violates the Constitution’s Appointments and Separation of Powers Clauses. The Appointments Clause requires that important federal officials be appointed by either the President or by Cabinet heads, while PCAOB members are picked by the SEC commissioners acting collectively.
CEI is acting as co-counsel in the case. CEI general counsel Sam Kazman stated: “The Appointments Clause may sound like a dry technicality, but the Framers realized that unless government officers are picked by individual officials, accountability is destroyed. And with the PCAOB’s destructive accounting mandates we have a prime example what happens when an agency operates without strong oversight.”
Michael A. Carvin of the law firm Jones Day is lead attorney for the petitioners.
“The PCAOB may have been intended to protect investors from corporate abuses, but its vastly excessive rules are injuring the ability of honest firms to raise capital, and its costs fall disproportionately on new businesses and smaller public companies,” said John Berlau, Director of CEI’s Center for Investors and Entrepreneurs.
Concern over the law has been bipartisan. Many Democrats, including House Speaker Nancy Pelosi (Calif.) and Sen. John Kerry (Mass.), have criticized the law's overreach, and the House passed an amendment as part of the financial reform bill to exempt smaller companies from some of the PCAOB's burdensome mandates.