The Supreme Court agreed today to hear a challenge to the accounting oversight board established by the Sarbanes-Oxley Act, an unusual move considering the U.S. Court of Appeals for the D.C. Circuit upheld the constitutionality of the board and no other circuit court has ruled on the question.
Jones Day partner Michael Carvin is expected to argue the case against the Public Company Accounting Oversight Board this fall in the high court. Carvin argued the case in the D.C. Circuit last year for the Free Enterprise Fund, a non-profit public interest group based in the District, and the Nevada-based accounting firm Beckstead and Watts.
“It seems the court is concerned about the novelty of this board,” said Jones Day partner Christian Vergonis, who participated on the appellate briefs. “There is a real serious concern here that Congress encroached on the executive’s power.”
The accounting board, which oversees auditors of public companies, was set up after the Enron and WorldCom corporate scandals. The board establishes auditing and ethics standards, conducts investigations, and can impose sanctions.
The Securities and Exchange Commission supervises the five-member board. Lawyers for the Free Enterprise Fund argue this arrangement violates separation of powers and the Constitution’s appointments clause because the president lacks adequate control over the board.
In August 2008, D.C. Circuit Judges Judith Rogers and Janice Rogers Brown found the board is constitutional. Judge Brett Kavanaugh, who voted no, called the case the greatest separation-of-powers dispute to reach the court in two decades. A copy of the opinion is here.
Baker Botts partner Jeffrey Lamken, who argued the case for the board in the D.C. Circuit, declined to comment. “We remain confident that the PCAOB's structure is constitutional and look forward to our opportunity to demonstrate that in the Supreme Court,” a PCAOB spokeswoman said in a statement.