FEF v. PCAOB: The Constitutionality of the Board is Challenged

In February 2006, the Free Enterprise Fund (FEF) and Beckstead and Watts filed suit in Federal District Court for the District of Columbia against the Public Company Accounting Oversight Board (PCAOB or Board), and the individuals on the Board in their capacities as members.  The plaintiffs are represented by a high-powered legal team that includes both Kenneth Starr and noted litigation firm Jones Day.  The plaintiffs claim that the provisions of Sarbanes-Oxley that created the Board are unconstitutional.  FEF is a non-profit organization that describes itself as, “… not just another “think tank,” but a “do tank” dedicated to specific, targeted and effective action to defeat job-killing proposals and enact free market reforms.”  FEF hosts www.reformsarbox.com, a website that advocates for legal and political reform of Sarbanes-Oxley.  Beckstead and Watts is an accounting firm based out of Nevada that is currently under investigation by the Board.  The PCAOB’s inspection and subsequent investigation of Beckstead and Watts was one of the catalysts that gave rise to this litigation.

FEF and Beckstead and Watt’s complaint is based on three arguments.  First, the plaintiffs allege that Sarbanes-Oxley violates the separation of powers doctrine by granting improper executive authority to the PCAOB.  Second, the plaintiffs claim that the process for selecting members of the Board violates the Appointments Clause of the Constitution.  Finally, the plaintiffs claim that SOX improperly grants legislative power to the Board that is properly the exclusive province of the Federal Government’s legislative branch.  The plaintiffs assert that this is an unconstitutional delegation of power regardless of whether the PCAOB is a government agency (as the plaintiffs claim), or a non-governmental private company (which is the language used in SOX).

The plaintiffs seek a declaratory judgment declaring the provisions of SOX that created the PCAOB unconstitutional, and an injunction against the PCAOB from proceeding in any enforcement investigations or actions against Beckstead and Watts.

Read the complaint here