Legal News

Will a Lawsuit Unravel SOX? Firm Brings Constitutional Challenge

By Ashby Jones

Will a lawsuit unravel SOX? According to personal finance columnist Jane Bryant Quinn, it’s quite possible.

Over the weekend, Quinn wrote a piece in the Washington Post on a lawsuit pending in front of the D.C. Circuit that could spell doom for Sarbanes-Oxley, the 2002 law passed in the wake of the decade’s big accounting scandals.

At issue in the lawsuit: whether the Public Company Accounting Oversight Board, created under SOX to help clean up the accounting profession, is constitutional. The plaintiff, Nevada accounting firm Beckstead & Watts, argues that “the Board’s structure and operation, including its freedom from Presidential oversight and control and the method by which its members are appointed, contravene” the Constitution’s separation of powers principles and Appointments clause. Click here for a copy of the complaint.

The initial complaint was dismissed in March of last year. But Beckstead appealed to the D.C. Circuit, where they’re hoping to have better luck. Arguments took place in April, and, according to this piece by Bloomberg’s Jonathan Weil, Beckstead might have at least one vote in its pocket, that of judge Brett Kavanaugh.

(According to the WaPo, in a June memo, Linda Lord, the head of legislative and regulatory affairs for UBS said it was “highly likely” that PCAOB would lose the case. “Not only will it be put out of business,” she wrote, “but SOX in its entirety will fall.” The law apparently lacks a severability clause. So if PCAOB is shot down, so goes all of Sarbox.)

In any event, if Beckstead loses the case, it won’t be for lack of legal firepower. Ken Starr (pictured), Georgetown’s Viet Dinh and Jones Day’s Michael Carvin have all worked on its behalf.

Full post as published by Law Blog - WSJ.com on July 21, 2008 (boomark / email).