Corporate Governance

FEF v. PCAOB and the Threat to SEC Independence (Part 4)

By J Robert Brown Jr.

In FEF v. PCAOB, Justice Breyer pointed out the statutory silence on any limitation on presidential removal of SEC commissioners.  "As far as its text is concerned, the President's authority to remove the Commissioners is no different from his authority to remove the Secretary of State or the Attorney General."  Moreover, the omission appeared not to be accidental.  As he notes:

• Congress created the Commission during the 9-year period after this Court decided Myers, and thereby cast serious doubt on the constitutionality of all 'for cause' removal provisions, but before it decided Humphrey's Executor, which removed any doubt in respect to the constitutionality of making commissioners of independent agencies removable only for cause. In other words, Congress created the SEC at a time when, under this Court's precedents, it would have been unconstitutional to make the Commissioners removable only for cause. 

In other words, Congress didn't include a for cause removal restriction because it didn't think it had the authority to do so.  The omission was, however, mistaken, according to this reasoning, deliberate.

The analysis is strong, as far as it goes.  The analysis doesn't resolve the matter.  Of course, there are plenty of references to independent agencies in the legislative history to the Securities laws and, when the Commission was created, it was given authority previously held by the FTC, which was independent (the commissioners could only be removed for cause).  Moreover, the five year term given to SEC commissioners would be meaningless if the President could remove only for cause.  Nonetheless, Justice Breyer's analysis (with three other concurring Justices) raises serious questions about the independence of SEC commissioners. 

Justice Breyer stops short of resolving the issue.  ("I do not need to decide whether the Commissioners are in fact removable only 'for cause' because I would uphold the Accounting Board's removal provision as constitutional regardless.").  But he suggested that even if he were to find that commissioners could be removed by the President at will, it would not impair the SEC's independence.  He's wrong on that and we'll explain why in the final post. 

Full post as published by The Race to the Bottom on October 14, 2010 (boomark / email).