Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, August 22, 2008

D.C. Circuit Holds that Creation of PCAOB was Constitutional

In Free Enterprise Fund v. PCAOB (D.C. Cir. Aug. 22, 2008), the D.C. Circuit, with one Judge dissenting, held that Title I of the Sarbanes-Oxley Act (which created the Public Company Accounting Oversight Board) was constitutional and did not violate the appointments clause and separation of powers because it does not permit adequate Presidential control of the Board.  The majority stated:

We hold, first, that the Act does not encroach upon the Appointment power because, in view of the Commission’s comprehensive control of the Board, Board members are subject to direction and supervision of the Commission and thus are inferior officers not required to be appointed by the President.  Second, we hold that the for-cause limitations on the Commission’s power to remove Board members and the President’s power to remove Commissioners do not strip the President of sufficient power to influence the Board and thus do not contravene separation of powers, as that principle embraces independent agencies like the Commission and their exercise of broad authority over their subordinates. Accordingly, we affirm the grant of summary judgment to the Board and the United  States.

Judge Kavanaugh, in dissent, described the case as "the most important separation-of-powers case regarding the President’s appointment and removal powers to reach the courts in the last 20 years."  Both opinions are lengthy, and much of the majority opinion is spent in refuting the dissent's arguments.Download PCABO_DCopinion.pdf

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