In high school, I once tried out for a production of West Side Story. Since I could neither sing nor dance very well, the drama teacher out of pity awarded me the role of the dour Lt. Shrank. My performance quickly garnered a nomination among my cast mates for "least supporting actor." The teacher told me afterwards that I had a promising career in show business - as an usher. I knew then that there would be no second acts. On a professional level, I stick to what I know best, or, as some will tell you, where I can do the least damage.Unfortunately, some people can't take a hint, or for that matter even a stiff backhand.
Take the recent appellate court decision that ruled on the constitutionality of the Public Company Accounting Oversight Board, which we all hoped had put an end to more than two years of legal nonsense.
To review, a three-judge panel on the U.S. Appeals Court for the District of Columbia Circuit ruled 2-1 that the makeup of the PCAOB under Sarbanes-Oxley does not violate the appointments clause and the separation of powers in the Constitution.
The suit against the audit overseer was filed in 2006 by Beckstead & Watts, a small firm in suburban Las Vegas, whose Securities and Exchange Commission clients were comprised largely of small micro caps. Apparently the firm had taken umbrage at a PCAOB inspection report conducted two years earlier that found deficiencies in roughly half the audits it inspected. Not unlike receiving a failing grade and then questioning a school district on its hiring process. The firm was joined in the lawsuit by the free market advocacy group the Free Enterprise Fund, which, not coincidentally, counted former Bill Clinton nemesis and legal pursuer Kenneth Starr as one of its attorneys in the PCAOB suit. It should be noted that the lengthy dissenting vote was cast by Judge Brett Kavanaugh, who formerly worked for Starr's Office of Independent Counsel and helped write the Starr Report.
His colleagues disagreed and argued that ruling the PCAOB unconstitutional because the president didn't directly appoint its members would also endanger the independent status of other federal agencies, such as the Federal Trade Commission.
Tossing any conspiracy theories aside, the ruling, albeit close, should have been the end of the legal battle.
But we may be treated to a second act, as the plaintiffs have indicated that they may appeal to either the full appeals court or even the Supreme Court.
In the future, a ruling against the PCAOB would by proxy mean a ruling against Sarbanes-Oxley, the reform law that created the board six years ago. Space prohibits me from detailing what a detrimental effect that would have on the already fragile confidence of investors, particularly in the current economic climate, not to mention the reputation of the audit profession, which has been rebuilt from its nadir of 2001.
Any way you look at it, an appeals process would usher in a repeat performance that no one wants - and certainly not one that investors need.
