Ken Starr and Viet Dinh have an important article in the WSJ today about the constitutional affront that is the Public Company Accounting Oversight Board (PCAOB, otherwise known as Peek-A-Boo). The nub of the matter:
In writing the 2002 law, Congress created a striking Constitutional anomaly – a powerful executive branch agency with a structure that gives the President almost no say over its policies. With minimal oversight and no real supervision, the PCAOB decides which accounting firms to inspect and how to conduct an investigation. It interprets sections of Sarbanes-Oxley, deciding, for instance, what is an “internal control” under the act’s Section 404. It was also given the power to levy an “accounting support fee,” essentially a tax on all public companies, to fund its operations.
Yet, under the law, the five members who run the PCAOB are appointed not by the President – but by the five commissioners of the SEC. We hold that this violates the Constitution’s Appointments Clause, which states clearly that principal “officers of the United States” shall be appointed only by the President “with the advice of and consent of the Senate.”
The “constitutional flaws in the PCAOB statute are not matters of mere etiquette or protocol,” Judge Brett Kavanaugh of the federal appeals court of the District of Columbia wrote last summer. “By restricting the President’s authority over the board, the act renders this Executive Branch agency unaccountable and divorced from Presidential control to a degree not previously not previously countenanced in our constitutional structure.”
That’s why, in his strongly worded dissenting opinion, Judge Kavanaugh called our challenge to the PCAOB “the most important separation-of-powers case regarding the president’s appointment and removal powers to reach the courts in the last 20 years.”
Indeed. Sarbanes-Oxley and the PCAOB together have cost the U.S. economy more than $1 trillion, according to a joint study by Brookings and AEI. Yet the board appears to be proud of having no oversight. That must change.