A Supreme Debate on the PCAOB’s Fate

The Supreme Court has agreed to rule on the question of whether the Public Company Accounting Oversight Board as established under Sarbanes-Oxley violates the separation-of-powers doctrine and appointments clause of the Constitution. It’s not likely this is going to be one of those controversies that nominee Sonia Sotomayor will have to worry about discussing at great length during her confirmation hearings, but how about after she gets confirmed? One can only imagine how the transcript of the oral arguments might go.

Chief Justice Roberts: Do you solemnly swear to tell the truth, the whole truth, and to execute faithfully the office, um, I mean faithfully execute, wait can I have a do-over?

Attorney for Petitioners: Mr. Chief Justice, may it please the court, I did not expect the attorneys to be sworn in at this court.

Justice Sotomayor: I would hope that a wise Latina woman with the richness of her experiences would more often than not know you don’t have to swear in the lawyers, even if this is my first term here.

Justice Ginsburg: I would hope that a wise old Jewish woman would know that too, sister.

Chief Justice Roberts: Why don’t you just present your case then?

Attorney: Certainly, your honor. We believe that the Sarbanes-Oxley Act of 2002 violates the Constitution’s separation-of-powers principle and the appointments clause by vesting members of the PCAOB with far-reaching executive power while completely stripping the president of all authority to appoint or remove those members or otherwise supervise or control their exercise of that power.

Justice Stevens: Doesn’t the president appoint the SEC, and the SEC has oversight of the peekaboo or whatever you call it, and its commissioners appoint the board members?

Attorney: Indeed, your honor, the PCAOB has argued that is the case, but I would argue that the court of appeals erred in holding that the PCAOB members are quote-unquote “inferior officers” supervised by the SEC. The SEC may review some of the PCAOB members’ work, but the SEC lacks the authority to supervise those members personally or to remove them for any policy-related reason.

Justice Scalia: That court must be living in another world. Isn’t the problem not with the SEC or its oversight, but that the accounting firm you represent is just upset that they received a critical inspection report from the PCAOB?

Attorney: May it please your honor, but the issue of the inspection report is irrelevant. Besides, the plaintiff here is not really the accounting firm in question, Beckstead and Watts, but the Free Enterprise Fund, which is a strong advocate of free markets and limited government intervention, which I would hope you support. The PCAOB members can’t be considered inferior officers of the SEC when they can only be removed for cause. Besides that, they have no business inspecting accounting firms and faulting them for minor problems with their audit processes and internal controls, and how many office keys they give out to their employees. Did you know the PCAOB board makes more money than President Obama?

Justice Alito: I have no problem with that. But aren’t many of these firms run by immigrants or descendants of immigrants? Deloitte, for instance, that sounds like a French name to me. Because when a case comes before me involving, let's say, someone who is an immigrant - and we get an awful lot of immigration cases and naturalization cases - I can't help but think of my own ancestors, because it wasn't that long ago when they were in that position. I have to say to myself, "You know, this could be your grandfather, this could be your grandmother. They were not citizens at one time, and they were people who came to this country."

Justice Thomas: Would you say this whole PCAOB inspection process amounts to a high-tech lynching of these accounting firms?

Attorney: I don’t know if I would go that far, but I would argue that the PCAOB lacks an accountable structure, which is not so good for an accounting oversight board, now is it? And now they want to regulate the accounting firms that audit broker-dealers like Bernie Madoff. Imagine that.

Justice Breyer: But wouldn’t invalidating the PCAOB and its structure also call into question the structure of other independent federal agencies, and perhaps invalidate them as well? At a time when we probably need more regulation, not less, of the financial markets, for example, or the food supply, don’t we need to have agencies and boards whose officers can’t be removed, except for good cause?

Attorney: I’m not prepared to argue the merits of the structure of other congressionally mandated organizations, but I do see flaws with the structure of this particular board.

Justice Kennedy: I’m probably going to be somewhere in the middle on this one, as usual, but would the remedy be for the president to appoint the members of the PCAOB instead of the SEC commissioners? Then would you have to have the Senate confirm them?

Justice Thomas: That’s not a fun process, I can tell you. Hey, what's that hair doing on my Coke can?

Justice Sotomayor: Why don’t we just send the question back to the lower court? After all, the court of appeals is where policy is made. By the way, is this on tape?