Supreme Court Case
Regarding the Supreme Court case, Theo Francis provided background in a Nov. 19 article in Business Week, These Men Could Kill Sarbox. "These Men" refers to attorneys Michael A. Carvin and Noel J. Francisco of Jones Day, who are among the team who have taken on the case on behalf of the plaintiffs, audit firm Beckstead & Watts, and conservative group the Free Enterprise Fund. As summarized by Business Week's Francis (reformatted to bullets):
A good source of information on the PCAOB case is law firm Akin Gump's SCOTUS Blog , which in turn links to Akin Gump's SCOTUS Wiki. From there, you can find links to the briefs filed in the PCAOB case. Props to Maxwell Hyman, intern in FEI's Government Affairs office in Washington, DC, who has been following the PCAOB case and pointed out the SCOTUS blog and wiki links to me. (I hear Max plans to wait in line outside the Supreme Court early next Monday morning, to get one of the coveted spots for public observers to observe the oral arguments next week!)
- Carvin and Francisco charge that the PCAOB is unconstitutional. They argue that the Constitution requires Presidential appointment of the top members of so powerful a body as the PCAOB. Yet, they point out, PCAOB members are appointed by the Securities & Exchange Commission. The lawyers also contend that PCAOB's members are largely beyond Presidential discipline because of a variety of restrictions on their removal. Since the Constitution requires the President to "take care that the Laws be faithfully executed," the President must have the widest possible power to remove those responsible for the government's executive functions, they say.
- The PCAOB argues that it is constitutional. Backers say its members are low-level officers who don't have to be appointed by the President, and say the President and the SEC have plenty of tools to govern the board.
- A ruling for Beckstead could invalidate a host of post-Enron reforms.
- Because of a drafting quirk, the entire body of Sarbanes-Oxley might fall if a significant legal flaw is found anywhere within the legislation, say some attorneys.
- Other lawyers say a ruling for Beckstead could call into question the legitimacy of other regulators' appointments. For example, the fixed terms of the Federal Reserve's seven governors limit the President's ability to remove them—a situation that theoretically could be proved invalid if the court sides with the broadest arguments being made by conservative lawyers filing briefs in the Beckstead case.
- But even a less sweeping opinion would probably give Congress time to fix the law so that it conforms with the Constitution. That would give critics a chance to reopen SarbOx to debate—and even make major changes. "You create tremendous advantages for the minority [party] to get substantial amendments," Carvin says.
- Separately, the House is considering exempting small companies from key provisions of SarbOx.
Constitution of PCAOB Board
As the world awaits the Supreme Court's decision on the PCAOB's constitutionality, we also await word on the constitution of the board itself, with the rumor mill heating up as to who the SEC plans to appoint to the open board seats on the PCAOB, including as chair of the board.
Following former PCAOB chairman Mark Olson's departure, Dan Goelzer has served as Acting Chairman. Other open board seats (besides that of permanent chair) include that of Charles Niemeier, whose term ended in Oct. 2008 and has remained on the board pending appointment of a successor (Niemeier announced in September his intent to leave the board "in the near future"), and Bill Gradison, whose five year term ends this year. (The continuing PCAOB board member among the five member board, Steven B. Harris, was appointed in June, 2008.)
Earlier today, Bloomberg's Jesse Westbrook and Ian Katz reported on the current speculation as to who the SEC may appoint to fill the vacancies on the PCAOB board. In their article, SEC Said To Consider CFA's Schacht to Lead U.S. Auditor Board. Westbrook and Katz report:
SEC Chairman Mary Schapiro is considering Kurt Schacht, a managing director of the Charlottesville, Virginia-based CFA Institute, to lead the board, according to two people familiar with the deliberations. An appointment may be made this month, said one of the people, who declined to be identified because the deliberations are private....
SEC spokesman John Nester said “the selection process is still under way and no decisions have been made.” Schacht declined to comment yesterday when reached by telephone.Schapiro is also considering Helen Munter, Linda Griggs or John Sturc as candidates to replace Charles Niemeier and Willis Gradison, according to the people. ... Munter, a certified public accountant who worked for Deloitte & Touche LLP, is a deputy director in the PCAOB unit that inspects audit firms. Griggs, a partner at Morgan Lewis & Bockius LLP in Washington, was the top lawyer in the SEC’s office of the chief accountant. Sturc, a partner at Gibson Dunn & Crutcher LLP in Washington, is a former SEC enforcement lawyer.Munter declined to comment. Griggs and Sturc didn’t return phone calls seeking comment.
SAG Appointed
In other PCAOB news, the board announced on Nov. 6 the appointment of new members of its Standing Advisory Group or SAG. Among the ten new SAG members are former FASB Chairman Denny Beresford (now a professor at the Univ. of GA), former SEC Director of the Division of Corp Fin John White (now an attorney with Cravath, Swaine & Moore), and former PCAOB Chief Auditor Doug Carmichael (a professor at Baruch College).
Other new SAG members include Grant Thornton's John Archambault, S&P's Neri Bukspan, PwC's Michael J. Gallagher, Delta Air Lines' Patricia Ann K. (Kiko) Harvey, Mitchell & Titus' Anthony S. Kendall, CalPERS' Mary Hartman Morris, and E&Y's Kevin B. Reilly. The ten new members join 20 other continuing/reappointed members of the SAG.
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