Term: 2009
Docket: 08-861
Free Enterprise Fund And Beckstead And Watts, Llp v. Public Company Accounting Oversight Board Et Al.
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08-861 FREE ENTERPRISE FUND V. PUBLIC CO. OVERSIGHT BD. DECISION BELOW: 537 F.3d 667 CERT. GRANTED 5/18/2009 QUESTION PRESENTED: 1. Whether the Sarbanes-Oxley Act of 2002 violates the Constitution's separation of powers by vesting members of the Public Company Accounting Oversight Board ("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, or whether, as the court of appeals held, the Act is constitutional because Congress can restrict the President's removal authority in any way it "deems best for the public interest." 2. Whether the court of appeals erred in holding that, under the Appointments Clause, PCAOB members are "inferior officers" directed and supervised by the Securities and Exchange Commission ("SEC"), where the SEC lacks any authority to supervise those members personally, to remove the members for any policy-related reason or to influence the members' key investigative functions, merely because the SEC may review some of the members' work product. 3. If PCAOB members are inferior officers, whether the Act's provision for their appointment by the SEC violates the Appointments Clause either because the SEC is not a "Department" under Freytag v. Commissioner, 501 U.S. 868 (1991), or because the five commissioners, acting collectively, are not the "Head" of the SEC. LOWER COURT CASE NUMBER: 07-5127
The U.S. Supreme Court case Free Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board et al., 2009 revolved around the constitutionality of the appointment process for members of the Public Company Accounting Oversight Board (PCAOB). The PCAOB was created by Congress as part of Sarbanes-Oxley Act to oversee audits of public companies in order to protect investors' interests. However, Free Enterprise Fund argued that this violated separation-of-powers principles because board members were not appointed by the President nor confirmed by Senate but rather selected by Securities Exchange Commission (SEC), an independent agency itself. In a 5-4 decision, the court ruled that such dual layers of insulation from presidential oversight did indeed violate constitutional principles regarding separation-of-powers and accountability in government agencies. However, instead of invalidating entire Sarbanes-Oxley Act or abolishing PCAOB altogether as petitioners requested, court decided only removal restrictions on board members were unconstitutional; thus allowing them to be fired at will by SEC which is directly accountable to President.
The dissenting opinion in the case of Free Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board et al., argued that the majority's decision was a departure from precedent regarding separation of powers principles. The dissenters believed that Congress had acted within its authority when it created the PCAOB with for-cause removal protections to ensure independence and objectivity in auditing public companies. They contended that these safeguards were necessary given past accounting scandals like Enron which demonstrated potential conflicts of interest without such protections. Furthermore, they disagreed with the majority’s view on dual for-cause limitations being unconstitutional, arguing there is no constitutional prohibition against two levels of protection from at-will removal by President; rather this structure promotes accountability while protecting agency independence.
