Corporate Governance

Free Enterprise Fund v. PCAOB: Regulation, the Free Market, and the Constitution (Amici Speak) (Part 9)

By J. Robert Brown

Two amicus briefs were filed in support of the positions taken by the Justice Department and the PCAOB.  One was from the Council on Institutional Investors, the other from seven former chairmen of the Securities and Exchange Commission.  Unanimity by the Chairmen is not always easy to come by as the split in the Stoneridge case illustrated. In that case, assorted chairmen were on both sides of the case (go here and here).  In this one, though, unanimity reigned. 

An amicus brief may not always have content particularly different from the merit briefs.  These two do.  The CII brief examined the history of self regulation and the history of the regulation of the accounting industry.  The brief emphasizes what is the big picture issue in this case:  Can there be a system of self regulation where oversight is independent of the industry subject to regulation.  As the brief noted:  "In contrast to the self-regulation system it replaces, many features of the PCAOB ensure the needed independence from regulated industry."  The brief likewise takes issues with the arguments that SOX has been entirely harmful to American business, particularly noting the improvement in investor confidence that resulted in a recovery of stock prices in the aftermath of Enron and Worldcom. 

The brief of the SEC chairmen (Cook, Hills, Williams, Ruder, Levitt, Pitt and Donaldson) likewise defended the constitutionality of the PCAOB.  So did the current chairman, by the way, since the SEC staff was listed as "of counsel" on the brief filed by the Justice Department.  As the brief noted:

• The SEC oversees numerous entities in this complex system, including self-regulatory organizations (SROs) . . .  This unique and integrated regualtory system, working as a whole and updated by Congress over the years, has successfully ensured worldwide investor confidence in the integrity of the U.S. markets. 

Directly to the point, the brief likewise notes that with the authority to create indpendent agencies, Congress has the authority to create "subunits such as the PCAOB within these agencies, staffed by inferior officers, who are appointed by, and function under the control and oversight of, the SEC itself."

We have posted on the DU Corporate Governance web site most if not all of the important documents on the case, including the assorted amici filed in the appellate case.

Full post as published by The Race to the Bottom on July 04, 2008 (boomark / email).