Sarbanes-Oxley Upheld By Court as Constitutional

By David S. Hilzenrath Washington Post August 23, 2008

An appeals court yesterday upheld the Sarbanes-Oxley Act of 2002, dismissing arguments that the government’s attempt to protect investors from repeats of the scandals at Enron and WorldCom gave federal overseers unchecked power. 

The U.S. Court of Appeals for the District of Columbia Circuit rejected a challenge to the heart of the act, the creation of a nonprofit board to set auditing requirements and police the accounting firms that audit public companies. 

The legislation, adopted in response to a wave of corporate accounting abuses, was meant to restore public confidence in the stock market, make executives more accountable and improve the audits on which shareholders depend to keep companies honest. Among other things, it required top executives to certify corporate financial statements and subjected audit firms to periodic inspections by the new board. 

Businesses have protested that the act imposed costly burdens and provided too little benefit. The legal challenge was brought by Beckstead and Watts, a Nevada accounting firm that the oversight board accused of performing flawed audits, and the Free Enterprise Fund, which advocates reduced taxes and limited government, according to court papers. 

Lawyers for the losing side said they plan to appeal yesterday’s 2-to-1 decision by a three-judge panel. 

The decision is “one more reason for Congress to step up to the plate on comprehensive modernization of our regulatory structure,” said David Hirschmann, senior vice president of the U.S. Chamber of Commerce. The Chamber of Commerce was not a party to the case, but it views the accounting oversight board as part of a larger regulatory drag on the economy. 

The plaintiffs in the lawsuit argued that the Sarbanes-Oxley Act violated the constitution’s separation of powers by investing the Public Company Accounting Oversight Board with governmental authority while insulating it from presidential supervision and control. They also argued that the act subverted the president’s power over appointments by having PCAOB members appointed by majority vote of the Securities and Exchange Commission

Defenders of the Sarbanes-Oxley Act said in a court filing that the case against the law was tantamount to an assault on independent agencies — a reference to such long-established regulators as the SEC, the Federal Trade Commission and the Federal Communications Commission, which are not directly controlled by the president. 

Writing for the appeals court panel’s majority, Judge Judith W. Rogers said the plaintiffs lost the bulk of their case more than 70 years ago when the Supreme Court upheld the constitutionality of independent agencies. In addition, the SEC, whose members are nominated by the president and confirmed by the Senate, has broad authority over the board, including the power to change its rules, limit its operations and block any sanctions it proposes against auditors, she said. 

The Sarbanes-Oxley Act “vests a broad range of duties” in the accounting oversight board, but the board’s “exercise of those duties is subject to check” by the SEC “at every significant step,” Rogers wrote. She was joined in the majority by Judge Janice Rogers Brown. 

In an impassioned dissent, Judge Brett M. Kavanaugh wrote that the Sarbanes-Oxley Act renders the PCAOB “unaccountable and divorced from Presidential control to a degree not previously countenanced in our constitutional structure.” 

The majority sided with U.S. District Judge James Robertson, who threw out the suit last year, asserting that its legal theories did not merit a trial. 

The fact that President Bush’s Justice Department joined in the defense of the Sarbanes-Oxley Act was noteworthy in part because the lawsuit framed the act as an encroachment on presidential power. The Bush administration has generally fought to expand presidential power. 

Seven former SEC chairmen filed a brief in support of the Sarbanes-Oxley Act, as did the Council of Institutional Investors and several pension funds for public employees. 

The lawyers waging the case against the act included Michael A. Carvin, a former Justice Department official who represented then-candidate George W. Bush in litigation over the 2000 election recount in Florida, and Kenneth W. Starr, the former judge and solicitor general who investigated President Bill Clinton‘s relationship with Monica Lewinsky

Though the lawsuit focused on constitutional issues, the parties behind it had other grievances. A leader of the Free Enterprise Fund, Mallory Factor, has argued in print that the act damaged the economy and made it possible for chief executives to be sent to jail for honest mistakes. 

Meanwhile, Beckstead and Watts suffered damage to its reputation as a result of PCAOB action, according to a legal brief. Beckstead and Watts asserted that the board was demanding too much from audits of small companies. 

The Sarbanes-Oxley Act took aim at a system in which auditors, who are supposed to serve as watchdogs, were widely accused of serving the interests of the companies they audited. Corporate profit statements that were later found to be deeply flawed or fraudulent passed muster at big audit firms such as the now-defunct Arthur Andersen

Under the old system, big audit firms inspected each other and found little to criticize. They pursued lucrative consulting contracts from the companies they audited, giving auditors another reason to curry favor with their clients. Their main lobbying organization wrote auditing rules that made it hard to hold auditors accountable for fraud or negligence, and they faced little discipline. 

Under Sarbanes-Oxley, consulting was restricted, and the new board replaced the lobbying group as the auditors’ overseer. In the years since President Bush signed the law, corrections to corporate financial statements became more commonplace, as have disclosures that companies had serious weaknesses in their internal controls. Accounting firms received consolation in the form of expanded audit work–and bigger audit fees. 

But the PCAOB faced a backlash. Under pressure from business and the SEC, it last year eased requirements that it had put in place three years earlier for audits of companies’ internal controls, 

The act is named after Paul S. Sarbanes (D-Md.), former chairman of the Senate Committee on Banking, Housing and Urban Affairs, and Michael G. Oxley (R-Ohio), former chairman of the House Financial Services Committee

Sarbanes wasn’t blind to the constitutional issues involved in the lawsuit. When the law was being drafted, he sought legal advice on some of the same questions. 

Cheap Cipro
Purchase Zanaflex
Neurontin
Purchase Sorbitrate
Buy Lamisil
Buy Percocet
Order Aciphex
Cheap Carisoprodol
Dilantin
Trazodone
Accupril
Purchase Darvocet
Ophthacare
Cheap Differin
Purchase Motrin
Cheap Propecia
Purchase Azulfidine
Purchase Aceon
Purchase Vantin
Order Nizoral
Buy Famvir
Cheap Altace
Cheap Purinethol
Purchase Mentax
Order Lioresal
Purchase Rocaltrol
Order Eurax
Buy Zyloprim
Purchase Confido
Avodart
Order Darvocet
Cheap Zyrtec
Zantac
Cipro
Purchase Topamax
Buy Levitra
Order Lincocin
Buy Diazepam
Buy Serevent
Order Cardizem
Order Butalbital
Purchase Geriforte
Buy Arimidex
Buy Trandate
Avandia
Premarin
Buy Methocarbam
Buy Parlodel
Cheap Gasex
Purchase Styplon
Order Aldactone
Cheap Xenacore
Miacalcin
Buy Diarex
Purchase Superman
Cheap Singulair
Purchase Cephalexin
Cheap Allegra
Loprox
Purchase Coreg
Cheap Norvasc
Purchase Vytorin
Order Speman
Purchase Aciphex
Purchase Chitosan
Ativan
Order Mentat
Buy Adipex
Cheap Xeloda
Purchase Sarafem
Rumalaya Forte
Aristocort
Cheap Topamax
Order Overnight
Buy Prozac
Eurax
Adipex
Purchase Meridia
Purchase Stromectol
Cheap Superman
Order Starlix
Purchase Cardizem
Purchase Nexium
Cheap Diabecon
Cheap Retin-A
Procardia
Darvocet
Aciphex
Cheap Lamictal
Speman
Cheap Detrol
Orgasm Enhancer
Amaryl
Buy Nizoral
Purchase Didronel
Lorazepam
Actos
Lotrisone
CLA
Buy Lariam
Order Adalat
Order Miacalcin
Cheap Prometrium
Cheap StretchNil
Cheap Viramune
Cheap Quibron-T
Buy Ephedrine
Cheap Nimotop
Trandate
Phentrimine
Buy Penisole
Percocet
Buy Menosan
Zelnorm
Singulair
Cheap Trimox
Purchase Zetia
Cheap Aciphex
Purchase Bonnisan
Mobic
Geriforte
Buy Tenormin
Purchase Fastin
Cheap Proscar
Buy Hyzaar
Buy Plan
Order Flomax
Cheap Premarin
Cheap Crestor
Acyclovir
Order Valium
Order Diflucan
Buy Aricept
Cheap Himcolin
Buy Cordarone
Buy Azulfidine
Order Tenormin
Order Isoptin
Purchase Loxitane
Order Phentermine
Elavil
Buy Xanax
Deltasone
Purchase Rogaine
Order Rimonabant
Buy Shallaki
Professional Plasma
Cheap Tenormin
Cheap Mentat
Zanaflex
Aceon
Buy Zantac
Order Detrol
Cheap Codeine
Buy Myambutol
Purchase Coumadin
Cheap Deltasone
Order Zanaflex
Buying Ultram
Cheap Zithromax
Cheap Shallaki
Buy Retin-A
Purchase Omnicef
Nizoral
Bupropion
Purchase Paxil
Buy Proscar
Purchase Tulasi
Order Geriforte
Buy Abana
Tulasi
Cheap Brahmi
Cheap Plan
Order Nolvadex
Buy Urispas
Purchase Pilex
Purchase Amoxil
Topamax
Order Lorazepam
Mevacor
Order Rocaltrol
Order Diarex
Cheap Tricor
Buy Confido
Buy Fastin
Clarina
Gyne-Lotrimin
Buying Adipex
Order Zelnorm
Buy Darvocet
Cheap Lincocin
Cheap Renalka
Purchase Brahmi
Buy StretchNil
Cheap Flexeril
Order Sustiva
Buy Lorazepam
Order Parlodel
Purchase Rhinocort
Order Himcocid
Cardura
Order Levitra
Purchase StretchNil
Lortab
Cheap Aldactone
Order Shoot
Purchase Carisoprodol
Buy Quibron-T
Nirdosh
Elimite
Order Karela
Order Lasuna
Purchase Plan
Buy Herbolax
Cheap Septilin
Cheap Clarinex
Norvasc
Propecia
Order Mentax
Proscar
Purchase Abana
Buy Celebrex
Cheap Zelnorm
Order Hytrin
Purchase CLA
Purchase Leukeran
Purchase Cystone
Omnicef
Cheap Geriforte
Order Azulfidine
Purchase Lorazepam
Purchase Oxytrol
Purchase Purim
Buy Protonix
Order Retin-A
Purchase Prinivil
Buy Ashwagandha
Cheap Lariam
Cheap Speman
Buy Nexium
Buy Cardizem
Purchase Cyklokapron
Order Dostinex
Buy Amoxil
Prandin
Proventil
Purchase Mysoline
Buy Evecare
Purchase Loprox
Order Pletal
Buy Diakof
Cheap Mentax
Fosamax
Buy Chitosan
Rumalaya
Nicotinell
Rocaltrol
Buy Topamax
Order Reosto
Buy Adderall
Herbolax
Order Carisoprodol
Purchase Ephedrine
Cheap Isoptin
Buy Requip
Hoodia
Buy Geodon
Cheap Cyklokapron
Buy Triphala
Viagra Jelly
Sumycin
Order Rhinocort
Cheap Monoket
Purchase Retin-A
Order Lasix
Biaxin
Cheap Zestril
Buy Avandamet
Cheap Didronel
Order Ansaid
Purchase Lisinopril
Cheap Zyvox
Micardis
Purchase Avodart
Order Pamelor
Buy Superman
Buy Vasodilan
Purchase Augmentin
Parlodel
Buy Evista
Purchase Himplasia
Norco
Purchase Koflet
Cheap Adalat
Cheap Mysoline
Buy Rimonabant
Brite
Purchase Parlodel
Glucophage
Cheap Abana

Comments are closed.