A New Court Term: Big Cases, Questions About the New Justice
Today is the first Monday in October, and so is First Monday, the traditional start of the Supreme Court term. The Court already heard one argument – in the Citizens United campaign finance case — but it had been carried over from last year, so it doesn’t really count.
In any event, continuing its trend from last term, the Court has further front-loaded its caseload — with nearly 60 arguments on its docket already. Fortunately, unlike last year, we’ll see many blockbuster cases, including:
- the application of the Second Amendment to state gun regulations;
- First Amendment challenges to national park monuments and a statute criminalizing the depiction of animal cruelty;
- an Eighth Amendment challenge to life sentences for juveniles; a potential revisiting of Miranda rights;
- federalism concerns over legislation regarding the civil commitment of “sexually dangerous” persons;
- a separation-of-powers dispute concerning the agency enforcing Sarbanes-Oxley;
- judicial takings of beachfront property; and
- notably in these times of increasing government control over the economy, the “reasonableness” of mutual fund managers’ compensation.
Cato has filed amicus briefs in many of these cases, so I will be paying extra-close attention.
Perhaps more importantly, we also have a new justice — and, as Justice White often said, a new justice makes a new Court. While Sonia Sotomayor’s confirmation was never in any serious doubt, she faced strong criticism on issues ranging from property rights and the use of foreign law in constitutional interpretation to the Ricci firefighters case and the “wise Latina” speeches that led people to question her commitment to judicial objectivity. Only time will tell what kind of justice Sotomayor will be now that she is unfettered from higher court precedent — and the first term is not necessarily indicative.
Key questions for the new Court’s dynamics are whether Sotomayor will challenge Justice Scalia intellectually and whether she will antagonize Justice Kennedy and thus push him to the right. We’ve already seen her make waves at the Citizens United reargument — questioning the scope of corporations’ constitutional rights — so it could be that she will decline to follow Justice Alito’s example and jump right into the Court’s rhetorical battles.
In short, it’s the first day of school and I’m excited.
Filed under: Government and Politics; Law and Civil Liberties
Sarbanes-Oxley’s Harms Are Magnified by the PCAOB’s Unconstitutional Structure
Passed with scant deliberation amid a stock market panic, the Sarbanes-Oxley Act of 2002 vastly expanded the federal government’s role in regulating corporate governance and the accounting industry. As part of that effort, Congress created a new agency to “audit the auditors.” Known as the Public Company Accounting Oversight Board, the agency has broad rulemaking and enforcement powers to set accounting standards, investigate accounting firms, punish criminal violations, and make whatever rules “may be necessary or appropriate in the public interest or for the protection of investors.”
Remarkably, the PCAOB (pronounced “peek-a-boo”) also has the power to fund its own budget by levying taxes on publicly traded companies. Despite giving the PCAOB all this power, however, Congress insulated it entirely from presidential oversight. Unlike with an ordinary “independent agency,” the president has no power whatsoever to appoint or remove PCAOB officials. Those officials may be removed only “for cause” by the SEC, not the president; and SEC officials may themselves be removed only for cause.
The Free Enterprise Fund challenged the constitutionality of the PCAOB and appealed to the Supreme Court. Cato’s supporting brief focuses on the PCAOB’s practical policy consequences, illustrating how the PCAOB’s unconstitutional structure has created incentives for out-of-control spending, agency aggrandizement, and lack of coordination between regulators. Our brief also highlights the PCAOB’s efforts to impose American accounting standards abroad, which has caused confusion and invited retaliation from foreign regulators.
I previously blogged about this case here and here.
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Law and Civil Liberties
Sarbanes-Oxley under Attack… from the Supreme Court!
Today the Supreme Court agreed to review a case brought by our friends at the Competitive Enterprise Institute that challenges the constitutionality of the Public Company Accounting Oversight Board (PCAOB, pronounced “peek-a-boo”). The constitutional problem with the PCAOB — there are many policy problems — is that its officers are appointed in an unconstitutional manner.
Under the Appointments Clause of Article II, section 2, the president has the exclusive power to appoint and remove government officials. The members of the PCAOB – which enforces the massive regulatory scheme Sarbanes-Oxley imposes on public companies – are appointed by the SEC, however, which then has limited supervisory/removal power. While this structural defect may seem like a minor technicality, what it means is that the awesome power to set accounting standards — not least Sarbox section 404, which has cost the economy over a trillion dollars — impose taxes, and levy criminal and civil penalties is vested in a bunch of unaccountable bureaucrats. Entities with similar authority, even those having a modicum of political independence, such as the IRS Commissioner and Federal Reserve governors, are all vetted by the president and the Senate.
The court below (the D.C. Circuit), however, held that PCAOB members are inferior officers and, as such, Congress “may limit and restrict the power of removal as it deems best for the public interest.” But this gets the Constitution backwards; Congress isn’t allowed to insulate important decisionmakers from political accountability. As CEI’s press release says:
If the President can pick and remove the PCAOB members, as the Appointments Clause requires, he will be on the hook for their policy failures, and thus have an interest in making them develop sound policies that protect investors and don’t stifle economic growth. He won’t be able to blame the red tape on an unaccountable agency whose officials he doesn’t select or control.
The Court will hear the case, Free Enterprise Fund v. PCAOB — which I previously blogged about here – in late fall.
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