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Despite indications that the holding would be the opposite, the DC Circuit Court of Appeals delivered an opinion in Free Enterprise v. PCAOB which upheld – by a 2-1 vote – the constitutionality of the Public Company Accounting Oversight Board on Friday. Here is a statement from SEC Chairman Cox – and here is a PCAOB statement.

The Court of Appeals decision upholds a lower court decision from eighteen months ago. The WSJ reports in this article that the plaintiffs intend to appeal either for a rehearing before the full DC Appeals court or to the US Supreme Court.

In eighteen parts, Professor Jay Brown has some analysis of the decision in his “Race to the Bottom” Blog. And here is an excerpt from a Washington Post article:

“Writing for the appeals court panel’s majority, Judge Judith W. Rogers said the plaintiffs lost the bulk of their case more than 70 years ago when the Supreme Court upheld the constitutionality of independent agencies. In addition, the SEC, whose members are nominated by the president and confirmed by the Senate, has broad authority over the board, including the power to change its rules, limit its operations and block any sanctions it proposes against auditors, she said.

The Sarbanes-Oxley Act “vests a broad range of duties” in the accounting oversight board, but the board’s “exercise of those duties is subject to check” by the SEC “at every significant step,” Rogers wrote. She was joined in the majority by Judge Janice Rogers Brown.

In an impassioned dissent, Judge Brett M. Kavanaugh wrote that the Sarbanes-Oxley Act renders the PCAOB “unaccountable and divorced from Presidential control to a degree not previously countenanced in our constitutional structure.” The majority sided with U.S. District Judge James Robertson, who threw out the suit last year, asserting that its legal theories did not merit a trial.”

The SEC’s Big “End of Summer” Rulemaking Binge

On Wednesday, the SEC will hold an open Commission meeting to consider:

– proposing an IFRS roadmap

– adopting rule amendments regarding the circumstances under which a foreign private issuer is required to register equity securities under Section 12(g)

– adopting amendments to foreign private issuer form/rules that are intended to enhance the information that is available to investors

– adopting an expansion of the cross-border business combination transactions and rights offerings exemptions and adopting changes to the beneficial ownership reporting rules to permit certain foreign institutions to file reports on a shorter form (as well as issuing interpretive guidance related to cross-border transactions)

– Broc Romanek