Legal News

Does Justice Kennedy Hold the Keys to Sarb-Ox?s Fate?

By Ashby Jones

Whither Sarbanes-Oxley? Come June, will the law exist in its current form or will it have to be dismantled or reconstituted, the result of a hostile Supreme Court ruling?

According to WSJ Supreme Court correspondent Jess Bravin, the conservatives and liberals seem — surprise! — split on the issue before them, and the outcome could turn on the vote of Justice Anthony Kennedy.

The issue, as we’ve written before, concerns whether the charter of the Public Company Accounting Oversight Board, an independent body established by Congress to oversee accounting firms, violates the Constitution. Congress granted to the SEC the power to appoint members to the PCAOB, but the plaintiffs in the case argue that such powers should be vested not in the SEC, but the president. Click here for Bravin’s story. (Click here for the NYT’s story; here for the WaPo’s.)

Bravin writes that the conservative justices suggested during Monday’s oral arguments that the board enjoys more independence from the president than the Constitution permits.

During the arguments, conservative justices including Antonin Scalia noted that the president’s control over the accounting board is limited because the board answers to all five independent commissioners of the SEC, not just the chairman.

“The president has adequate control over the SEC only because he can dismiss the chairman of the SEC. But the activity here is not governed by the chairman of the SEC,” Justice Scalia said. “The governance of this board is by the members of the SEC.”

Because of its power to initiate investigations into accounting firms, the board can take “actions that can have significant, devastating consequences for the regulated bodies,” said Chief Justice John Roberts.

Liberal justices, who are less likely to find fault with the independent agencies that play a central role in modern regulation, disputed suggestions that the board was free to run roughshod over the accounting firms it supervises.

“This is a board that has a relationship with the SEC, where it can’t do anything that doesn’t have the SEC’s approval,” Justice Ruth Bader Ginsburg said.

Justice Kennedy, the potential swing vote, without hinting at his perspective, initiated a line of questioning about whether it is appropriate for the president to make recommendations to an independent agency.

“Are you encouraging the president, on an ongoing, daily basis, to instruct an independent agency what he wants done?” Justice Kennedy asked Jeffrey Lamken, the attorney representing the accounting board. Lamken said the president has the same control over the board as he does over everything else that falls under the SEC’s jurisdiction.

“Which is nothing,” said Justice Scalia.

Full post as published by Law Blog - WSJ.com on December 08, 2009 (boomark / email).