My ABA Panel: Part III - Is the PCAOB Unconstitutional?

Many of us attending my American Bar Association panel last Friday had not been aware that a case has been pending before the US Supreme Court questioning whether the Public Company Accounting Oversight Board is constitutionally created. Arguments took place last December, and a panelist employed by the PCAOB was joking as to whether she will still be so employed a year from now. The decision is expected within the next few months, possibly even sooner.

At the heart of the case, apparently, is an alleged violation of the “separation of powers” clause in the Constitution. The PCAOB’s commissioners are answerable to the Securities and Exchange Commission, not the President the way the SEC’s commissioners are. This indirect reporting is arguably unconstitutional, as it denies the President the right to directly oversee the Board.

This case is no joke. According to published reports, several of the Justices had hard questions for the lawyers representing the Board. What if the PCAOB were ruled unconstitutional? I suppose there would be several options. 1) Go back to pre-Sarbanes and leave it be. 2) Have Congress pass a statute giving the President the power to appoint Board members directly (this may not totally please SEC Chair Schapiro). 3) Well, actually I don’t think there is a #3 after the Supremes rule.

Leave a comment