Professors File Brief in Key Supreme Court Case Challenging Financial Watchdog

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New York, October 21, 2009 – The massive financial frauds that brought down Enron and WorldCom led in 2002 to the creation of the Public Company Accounting Oversight Board to be a watchdog over auditors and prevent future scandals.

 

A suit challenging the board’s constitutionality is slated to be heard by the U.S. Supreme Court on Dec. 7. Now, two Columbia Law School professors have filed an amicus brief in opposition, on behalf of leading constitutional and administrative law scholars, saying the board passes constitutional muster.

 

At issue in Free Enterprise Fund vs. Public Company Accounting Oversight Board  is whether the methods for selecting and removing the board’s members violates the separation of powers between branches of government or the Appointments Clause of the Constitution, which requires top government officials to be appointed by the President and confirmed by the Senate.

 

The board, which was created under the Sarbanes-Oxley Act, tightened up disclosure and reporting requirements for public corporations. The Securities and Exchange Commission appoints board members for set terms and can remove them for cause.

 

That arrangement accords with the Constitution’s text and over a century of case law, argue Professor Gillian Metzger, a leading expert on constitutional and administrative law, and Henry Monaghan, Harlan Fiske Stone Professor of Constitutional Law, a nationally recognized scholar on constitutional law. Metzger and Monaghan wrote the brief with Caitlin J. Halligan, a partner at Weil Gotshal & Manges and Law School adjunct professor.

 

According to the brief, any decision holding that the President must have unlimited power to remove all executive officials, including lesser officials and employees, would be hugely and unjustifiably disruptive. “This court’s longstanding and deeply entrenched precedent establishes that the President does not enjoy a constitutionally protected authority to remove at will all persons exercising executive power,” the brief states. “Indeed, the claim that the Constitution grants the president such power finds no support whatsoever in the volumes of the Court’s reports.”

 

Metzger and Monaghan also emphasize that the SEC must approve the board’s rules and budget and has the power to review sanctions imposed by the board. “In short, the SEC exercises comprehensive control of the board,” the brief argues.

 

The brief further contends that the arrangement for selection of board members does not violate the Appointments Clause. Metzger and Monaghan reject claims made by the plaintiffs, who have twice suffered defeat in lower courts, that members of the board – officially a private corporation – are the type of government officials for whom presidential appointment and Senate confirmation are constitutionally mandated. Instead, given the extraordinary supervision the SEC exercises over the board, board members are lesser officials---“inferior officers”---and their appointment by the SEC is constitutional.

 

The case was brought by an anti-tax group and a Nevada accounting firm, which complained the accounting board has too much power and imposes costly burdens to comply with its rules.

 

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