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Sarbanes-Oxley Board Unconstitutional?

February 8, 2006

The Competitive Enterprise Institute, the Free Enterprise Fund and a small accounting firm are challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB), a creation of the Sarbanes Oxley Act. The "Peek-a-boo" is technically a non-profit organization, but has unusual powers to enforce federal laws and set standards for auditing internal controls at public companies. If successful, this suit will gut the costly, wasteful and ineffective Sarbox accounting monstrosity.

"The case against the PCAOB focuses on how its members are appointed. Hans Bader, CEI's counsel for special projects, argued in a CEI paper that the process violates the appointments clause of the U.S. Constitution which requires senior federal officials to be named by the President and lesser officials to be picked the President, the courts, or a department head.

Congress took a different approach in the Sarbanes-Oxley Act of 2002. It created the five-member Accounting Oversight Board as a private, nonprofit corporation, rather than a government agency, and left appointment of board members to the Securities and Exchange Commission.

Since PCAOB members have broad powers and pull in upwards of $450,000 a year, Bader and co-author John Berlau, a CEI economic policy fellow, view them as "principal officers" who must be appointed by the president and confirmed by the Senate. If they are deemed to be lesser officers, they say their appointment still won't pass muster because the SEC isn't a Cabinet department and PCAOB members are picked by the five-member commission rather than the agency's "head."" (From Dow Jones newswires)

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