Prominent Officials, Scholars Endorse CEI’s Supreme Court Challenge to Sarbanes-Oxley Accounting Board


Prominent Officials, Scholars Endorse CEI’s Supreme Court Challenge to Sarbanes-Oxley Accounting Board

CEI Case Gains Bipartisan Support from Attorneys General, Former SEC Commissioner, Legal Scholars, Economists

Washington, D.C., October 20, 2009—The U.S. Supreme Court is poised to hear a case that could have a major impact on the U.S. capital markets.  In a new development, three former U.S. Attorneys General, a prominent former Democratic Commissioner of the Securities and Exchange Commission, and several law professors and economists are all asking the Court to strike down as unconstitutional Sarbanes-Oxley’s Public Company Accounting Oversight Board, or PCAOB.

In nine separate amicus briefs, these distinguished “friends of the court” argue that the structure of the PCAOB – which has set burdensome accounting rules that have cost the economy billions – lacks constitutional accountability because its structure bypasses Presidential appointment, Senate confirmation, and the Executive Branch’s power to remove. They side with the Competitive Enterprise Institute, whose attorneys are serving as co-counsel with the Jones Day law firm in representing a small accounting firm’s challenge to the Board’s constitutionality that the Court will hear in its new term.

Roberta Karmel, appointed by President Jimmy Carter in 1977 as the SEC’s first female commissioner and now a professor at Brooklyn Law School, joins in a brief declaring that “the PCAOB is not subject to constitutionally sufficient control by the President” and its “structure violates the doctrine of separation of powers and the Appointments Clause.” The brief, submitted by Indiana University law professor Donna M. Nagy and co-signed by Karmel and 14 other law professors who specialize in securities regulation, concludes that the particular design chosen by Congress accorded the PCAOB substantial discretion and autonomy without imposing constitutionally sufficient accountability.”

Similarly, former Attorneys General – Edwin Meese, Richard Thornburgh, and William Barr – say in a brief of the Washington Legal Foundation that, “in creating the PCAOB, Congress ignored the Supreme Court’s warning that ‘extraordinary conditions do not create or enlarge constitutional power.’” Noting the policy failures of the PCAOB – issuing rules that burden legitimate entrepreneurs without substantially reducing investor fraud – the signatories make a connection to the board’s structural lack of accountability. “This Court must vindicate the Executive’s removal power in this case in order to prevent the PCAOB from continuing to wreak havoc on public companies, small businesses, and shareholders—indeed, on the economy as a whole—because the PCAOB is unresponsive and unaccountable to the body politic,” the authors conclude.

A similar conclusion is reached in a brief written by Cato Institute scholars and Professors Larry Ribstein and Henry Butler, who argue that “the Board’s structure creates unusually dangerous incentive certain to make it dysfunctional.”  In particular, they write, “The Board’s lack of coordination with the Executive Branch in regulating foreign firms has created confusion abroad and undercut the President’s ability to speak with one voice in foreign affairs.”

Other amici briefs were filed by the Center for Individual Rights, the Claremont Institute, the American Civil Rights Union, the Mountain States Legal Foundation and many other organizations and scholars. See them all at

CEI director of the Center for Investors and Entrepreneurs John Berlau, who has long expressed concern about the negative impact of Sarbanes-Oxley rules on shareholders and small business seeking a better return, says the amici briefs bring needed attention. “These briefs are especially important in that they coincide with recent academic research showing that Sarbanes-Oxley adversely affects business investment and research-and-development spending and a just-released SEC study showing that Sarbox compliance costs have not decreased for many of the smaller public companies,” Berlau said. “Sarbox is a significant cost factor holding back job growth and a stronger recovery.”

> Read about the case, Free Enterprise Fund v. the Public Company Accounting Oversight Board, at