IS THE PCAOB A 'HEAVILY CONTROLLED COMPONENT' OF THE SEC?: AN ESSENTIAL QUESTION IN THE CONSTITUTIONAL CONTROVERSY

The U.S. Supreme Court recently heard oral arguments in Free Enterprise Fund v. Public Company Accounting Oversight Board, 1 described as "the most important separation-of-powers case regarding the President's appointment and removal powers to reach the courts in the last 20 years." 2 Established by Congress as the cornerstone of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley" or the "Act"), 3 the Public Company Accounting Oversight Board (the "PCAOB" or the "Board") was structured as "a strong, independent board to oversee the conduct of the auditors of public companies." 4 Its principal mission was to prevent the type of auditing failures that contributed to the scandals at Enron, WorldCom, and numerous other public companies in the period leading up to the passage of the Act. The PCAOB's unique design as a private-sector corporation with vast regulatory powers sparked controversy from the start. Notwithstanding Sarbanes-Oxley's explicit provision that "[t]he Board shall not be an agency or establishment of the United States Government," 5 my first article on the PCAOB contended that the Board is part of the federal government, at least for purposes of the Constitution. 6 In the course of the Free Enterprise Fund litigation, the PCAOB and the Department of Justice ("DOJ") as intervenor have conceded that the PCAOB is subject to constitutional scrutiny. 7 Accordingly, the controversy now centers on whether the PCAOB's structure complies with the Appointments Clause and the doctrine of separation of powers. That structure has been called into question because the five members ...