Supreme Court weighs Public Company Accounting Oversight Board constitutionality

Washington Post Staff Writer
Tuesday, December 8, 2009

Supreme Court justices tangled Monday over whether an accounting oversight board established by Congress to make sure there were "no more Enrons" violates the president's executive power.

It is not the chief executive who is complaining -- both President Obama and his predecessor George W. Bush approved of the creation of the board, even without the ability to appoint or dismiss its members.

But the Public Company Accounting Oversight Board, sometimes called "peek-a-boo," is at the heart of a constitutional question about the separation of powers.

Though it is an agency in the executive branch, Justice Samuel A. Alito Jr. said: "As a practical matter, does the president have any ability to control what the board does?"

The five-member board was set up by the 2002 Sarbanes-Oxley Act in the aftermath of the huge corporate failures of Enron, WorldCom and others. It was designed to provide much tougher regulation of the auditing of public companies than under previous regimes. Its members are insulated from direct presidential control, including removal.

It has its own funding source, fees from the companies it oversees, and its members draw salaries far beyond normal civil service -- more than $500,000, and nearly $700,000 for the chairman.

The board is appointed and supervised by the Securities and Exchange Commission, which must approve its subpoenas and can rescind its enforcement actions.

Washington lawyer Michael A. Carvin, representing an anti-tax group and a Nevada firm challenging the board, said it is unique "in that the president can neither appoint nor remove its members, nor does he have any ability to designate the chairman or review the work product, so he is stripped of the traditional means of control that he has over the traditional independent agencies."

But Solicitor General Elena Kagan, defending the law, said it fits securely within the constitutional parameters the court has set for executive branch agencies. There is a "simple syllogism," she said: "The president has constitutionally sufficient control over the SEC. The SEC has comprehensive control over the accounting board, therefore the president has constitutionally sufficient control over the accounting board."

The case represents a test of the "unitary executive" theory that the president must have unfettered control over employees in the executive branch. Alito and Chief Justice John G. Roberts Jr. seemed particularly concerned that the president is not able to directly get rid of board members.

Roberts noted that the SEC can remove board members only "for cause" and that the president can remove SEC commissioners only for cause. He said the existence of two levels -- "for cause, squared" -- raises constitutional problems.

Alito added: "Suppose the president reads about [the salaries] and he says, 'This is outrageous. I want to change it.' How can he do that? Remove the SEC commissioners unless they take action against the board?"

Justices Ruth Bader Ginsburg and Stephen G. Breyer were tough questioners of Carvin, suggesting that the board met the court's precedents dating back more than 70 years.

Ginsburg challenged Carvin's description of the board as an independent agency.

"I mean, Congress wanted it to be independent of the profession," Ginsburg said. "That much is clear. It didn't want it to be independent of the SEC, so why are you characterizing it as an independent regulatory agency?"

The questioning indicated that Justice Anthony M. Kennedy might cast the deciding vote; he seemed skeptical of arguments that the SEC's control of the board was pervasive. "The history and tradition of boards like this is that their investigative powers are independent," he said.

The case is Free Enterprise Fund v. Public Company Accounting Oversight Board.

© 2009 The Washington Post Company