Amazing that seven years after it was signed into law, people are still pushing to wipe out Sarbanes-Oxley. On Monday next week, the Supremes will hear arguments that seek to dismantle Sarbox by wiping out the Public Company Accounting Oversight Board (PCAOB).
The case, as detailed here, involves a small accounting firm Beckstead and Watts which was audited by the PCAOB in 2004. The PCAOB found several deficiencies. As a result, the firm backed by the right wing Free Enterprise Fund launched a court case which questioned whether the PCAOB was in breach of the US constitution. The argument goes that with regulatory enforcement agencies, the US President appoints the governing board and Congress confirms their appointment. The PCAOB, however, was created by Sarbanes-Oxley which means it operates outside of Congressional and executive oversight.
The Wall Street Journal has waded into the debate, saying that PCAOB should be abolished.
The WSJ editorial says: “The PCAOB has indeed grown as a politically unaccountable entity with vast power to regulate business. Texas Senator Phil Gramm warned at its creation that Congress was setting up a board with ‘massive unchecked power’ to “make decisions that affect all accountants and everybody they work for, which directly or indirectly is every breathing person in the country. Massive is the right word. The accounting board’s wide-open mandate—to make whatever rules “may be necessary or appropriate in the public interest or for the protection of investors”—has cost the economy nearly $1 trillion, according to a study by AEI and the Brookings Institution. The benefit is supposed to be investor protection. But despite these costs, the law did nothing to warn about the meltdown of mortgage-backed securities, much less expose Bernie Madoff or other fraudsters.”
On the other hand, the D.C. Circuit Court of Appeals had already thrown out this case in a 2-1 decision, so what are the chances of the Supreme Court ruling against that? And in any case, the trend now with the global financial crisis is for increased regulation and it would be difficult to see the Supremes moving against this trend.
But in any case, what does it matter? The Obama administration has already gutted the law protecting investors when it threw its weight behind a 37-32 November vote in the House Financial Services Committee to exempt small businesses from section 404b of Sarbox. It’s a point I examined here.
In the end, it doesn’t really matter whether the case gets up or not. Sarbanes-Oxley has been effectively dismantled.
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