Appeals Court Rules on Federal Accounting Board

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
. 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

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