The constitutional problems with Sarbox primarily lie with the enforcement body that enforces the new regulatory regime–the Public Company Accounting Oversight Board (PCAOB)–and the broad discretionary and rulemaking powers granted to this body. For example, the statute required decisions to remove PCAOB members be made by the Securities and Exchange Commission, another independent agency, and not the President. [FN99] In Free Enterprise Fund v. PCAOB, the Supreme Court rolled back part of this unconstitutional power-grant when it struck down Sarbox's prohibition on removing PCAOB members without cause. [FN100] In its ruling, the Court concluded:

Without the ability to oversee the Board, or to attribute the Board's failings to those whom he can oversee, the President is no longer the judge of the Board's conduct. . . He can neither ensure that the laws are faithfully executed, nor be held responsible for a Board member's breach of faith. This violates the basic principle that the President “cannot delegate ultimate responsibility or the active obligation to supervise that goes with it . . . .” [FN101]

While recognizing the unconstitutionality of the non-removal provisions and the lack of a severability clause, the Court refused to strike down Sarbox in its entirety–or any other equally offensive provisions. [FN102] “Even after the Court's decision, the PCAOB members, whose pay exceeds the president's, retain considerable power.” [FN103] Nor has the Court addressed the Board's legislative-like features or many of its other sweeping powers. Thus, the PCAOB remains “an enforcement body that is at once lawmaker, tax collector, inspector, sheriff, prosecutor, judge and jury.” [FN104]

In the decade since its passage, there has been widespread recognition of Sarbox's flaws; even its authors have acknowledged the profound errors in the originally drafted legislation, [FN105] and the Obama administration also “tacitly recognized that the PCAOB had overregulated when it joined Republicans and moderate Democrats in backing an exemption to the PCAOB's internal-controls rules for small public companies.” [FN106] Despite broad agreement over Sarbox's failures, much of the law remains in place, as this regulatory behemoth has taken on a life of its own?

[FN99]. 15 U.S.C. § 7211(e)(6) (2006); see also Hans Bader, Free Enterprise Fund v. PCAOB: Narrow Separation-of-Powers Ruling Illustrates That the Supreme Court is Not “Pro-Business,” 2009-2010 Cato Sup. Ct. Rev. 269, 270 (“Under the statute, any decision to remove PCAOB members had to be made not by the president, but by another independent agency whose members can also only be removed for cause, the Securities and Exchange Commission.” (footnote omitted)).

[FN100]. Free Enter. Fund v. PCAOB, 130 S. Ct. 3138, 3151-61 (2010). . . .

[FN103]. Bader, supra note 99, at 271 (footnote omitted). . .

[FN106]. Bader, supra note 99, at 282 (footnote omitted).