More than a year ago, the United States District Court for the District of Columbia entered summary judgment in favor of the Public Company Accounting Oversight Board and against the Free Enterprise Fund. The FEF was seeking to have the Sarbanes-Oxley Act of 2002, which created the oversight board, declared unconstitutional.
After the setback, the FEF was undeterred. Chairman Mallory Factor told me in an interview then that the organization had anticipated the summary judgment and would appeal all the way to the U.S. Supreme Court if necessary:
We believed all along that this was going to happen, and we had planned that when it did, we would appeal. So we're going to the appellate level now. We believe it will ultimately reach the U.S. Supreme Court.
Tuesday, the first level of appeal went forward as a three-judge panel from the U.S. Court of Appeals for the District of Columbia Circuit heard oral arguments in the case. According to a Dow Jones Newswires story posted at Nasdaq.com:
In creating the oversight board, Congress "stripped the president of all the mechanisms of control" over it, said Michael Carvin, a Jones Day partner, who represents the plaintiffs. "He can neither appoint nor remove anyone on the board."
On the other side, the story says:
Baker Botts LLP partner Jeffrey Lamken, arguing on behalf of the oversight board, rejected that, saying the SEC has "pervasive" mechanisms of control over the accounting-oversight board. He compared the oversight board to industry self-regulatory groups such as the New York Stock Exchange or the Financial Industry Regulatory Authority....
The judges raised questions regarding the extent of the oversight board's decision-making authority and the degree to which it is subject to the Securities Exchange Commission, but did not address the defendants' argument that they could not yet hear the case because one of the plaintiffs did not appeal first to the SEC.
Stay tuned. I'll let you know when the decision comes down.