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Thanks to Brad Beckstead, more entrepreneurs will have their day in court
Posted by John Berlau
As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a
defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board
(PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead — whose two-person accounting firm had been brought to a
stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB — the dissent of Judge Brett Kavanaugh could not have
been more powerful...
[continue reading by clicking on the following link:
Thanks to Brad Beckstead...]
Posted by John Berlau
As Open Market readers know, the Competitive Enterprise Institute recently helped achieve a very significant victory wrapped within a
defeat at the DC Circuit Court of Appeals. Although in Free Enterprise Fund v. Public Company Accounting Oversight Board
(PCAOB), a three-judge panel ruled ruled 2-1 against Brad Beckstead — whose two-person accounting firm had been brought to a
stand-still by the Sarbanes-Oxley-created accounting regulator PCAOB — the dissent of Judge Brett Kavanaugh could not have
been more powerful...
[continue reading by clicking on the following link:
Thanks to Brad Beckstead...]
Official Statement on Supreme Court's Decision in our Favor on June 27, 2010:
"I am thrilled to learn today that the Supreme Court has handed down a 5-4 decision in our favor in our case
against the PCAOB, and has fixed the unconstitutional clause in the Sarbanes-Oxley Act of 2002. This measure
of success is due to the hard work and dedication of the entire legal team. Special "thanks" go to Chris
Vergonis and Michael Carvin of the Jones Day law firm in Washington, DC, and Sam Kazman, John Berlau and
Hans Bader of the Competitive Enterprise Institute, also in Washington, DC. Thanks also to Ken Starr and Viet
Dinh for staying committed to this very important cause.
The costs to comply with the Sarbanes-Oxley Act of 2002 are a "barrier to entry" for small entrepreneurial and
developing companies. Inclusive in those costs are the regulatory burdens for auditors of small companies to
comply with the standards established by the PCAOB. Auditors ultimately pass those compliance costs to their
clients by driving up audit fees. Consequently, the burdens have pushed the majority of micro-cap and
"development stage" companies either out of business or offshore. We must continue to fight against the
burdens of over-regulation on small business and hold the PCAOB accountable to the public.
Although the SOX 404(b) exemption for small business issuers included in the Finance Reform Bill is a great
leap forward for small business, I continue to encourage Congress and the SEC to take action now to remove
the "barriers to entry" to US capital markets for small and developing companies by exempting micro and
small-cap public companies and smaller audit firms from the regulatory oversight of the Sarbanes-Oxley Act of
2002."
- Brad Beckstead, Managing Partner, Beckstead and Watts, LLP
"I am thrilled to learn today that the Supreme Court has handed down a 5-4 decision in our favor in our case
against the PCAOB, and has fixed the unconstitutional clause in the Sarbanes-Oxley Act of 2002. This measure
of success is due to the hard work and dedication of the entire legal team. Special "thanks" go to Chris
Vergonis and Michael Carvin of the Jones Day law firm in Washington, DC, and Sam Kazman, John Berlau and
Hans Bader of the Competitive Enterprise Institute, also in Washington, DC. Thanks also to Ken Starr and Viet
Dinh for staying committed to this very important cause.
The costs to comply with the Sarbanes-Oxley Act of 2002 are a "barrier to entry" for small entrepreneurial and
developing companies. Inclusive in those costs are the regulatory burdens for auditors of small companies to
comply with the standards established by the PCAOB. Auditors ultimately pass those compliance costs to their
clients by driving up audit fees. Consequently, the burdens have pushed the majority of micro-cap and
"development stage" companies either out of business or offshore. We must continue to fight against the
burdens of over-regulation on small business and hold the PCAOB accountable to the public.
Although the SOX 404(b) exemption for small business issuers included in the Finance Reform Bill is a great
leap forward for small business, I continue to encourage Congress and the SEC to take action now to remove
the "barriers to entry" to US capital markets for small and developing companies by exempting micro and
small-cap public companies and smaller audit firms from the regulatory oversight of the Sarbanes-Oxley Act of
2002."
- Brad Beckstead, Managing Partner, Beckstead and Watts, LLP
OPINION: FEDERATION FEATURE
MAY 13, 2009
The PCAOB: An Obstacle to President Obama's Success
By KENNETH W. STARR and VIET DINH
As lawyers who have served in various posts in three Republican Administrations, we respectfully disagree with many of President
Obama's domestic policy initiatives.
But as members of a loyal American opposition, we certainly want the U.S. economy to succeed under his tenure. Moreover, as
attorneys who revere the U.S. Constitution, we want our nation's President to have all the authority this document gives him to
control the various federal agencies that carry out the nation's economic policy.
That's why we are now seeking review from the Supreme Court over a case we first brought during the administration of George W.
Bush challenging the structure of an agency that has great economic impact yet operates almost entirely outside the President's
control. We, along with Republican lead counsel Michael Carvin and attorneys with the free-market Competitive Enterprise
Institute, are asking the Court to give President Obama the power he is constitutionally entitled to exercise over this entity that
affects so many shareholders and entrepreneurs: the Public Company Accounting Oversight Board.
Created by the Sarbanes-Oxley Act of 2002, in the wake of the Enron and WorldCom accounting scandals, the PCAOB has broad
powers to set auditing standards for public companies and to investigate and discipline accounting firms that audit public
companies. Bills pending in Congress would expand the PCAOB's jurisdiction to non-public broker dealers as a response to the
Ponzi scheme at privately held Madoff Securities.
But before it is given any new power to supervise more entities, the PCAOB must itself be subject to supervision by President
Obama. He must have the power – as he does for virtually every other governmental entity Cabinet-level departments to the
Federal Reserve – to appoint PCAOB heads and remove them for cause if not at will.
In writing the 2002 law, Congress created a striking Constitutional anomaly – a powerful executive branch agency with a structure
that gives the President almost no say over its policies. With minimal oversight and no real supervision, the PCAOB decides which
accounting firms to inspect and how to conduct an investigation. It interprets sections of Sarbanes-Oxley, deciding, for instance,
what is an "internal control" under the act's Section 404. It was also given the power to levy an "accounting support fee," essentially
a tax on all public companies, to fund its operations.
Yet, under the law, the five members who run the PCAOB are appointed not by the President – but by the five commissioners of the
SEC. We hold that this violates the Constitution's Appointments Clause, which states clearly that principal "officers of the United
States" shall be appointed only by the President "with the advice of and consent of the Senate."
The "constitutional flaws in the PCAOB statute are not matters of mere etiquette or protocol," Judge Brett Kavanaugh of the federal
appeals court of the District of Columbia wrote last summer. "By restricting the President's authority over the board, the act renders
this Executive Branch agency unaccountable and divorced from Presidential control to a degree not previously not previously
countenanced in our constitutional structure."
That's why, in his strongly worded dissenting opinion, Judge Kavanaugh called our challenge to the PCAOB "the most important
separation-of-powers case regarding the president's appointment and removal powers to reach the courts in the last 20 years."
Unfortunately, the Justice Department of the Obama administration has followed the line of the Bush DOJ in saying our challenge
is much ado about nothing. While conceding that -- despite the statute's labeling of it a non-profit corporation -- the PCAOB is
indeed a government agency for constitutional purposes, the DOJ insists that the governance structure is fine because the PCAOB
leaders are merely "inferior officers."
While we contend that even if the PCAOB heads were somehow found to be lower-ranking officers, the structure would still not
pass not pass constitutional muster, it is interesting to note on striking characteristic about these officials said to be "inferior:" the
salaries they set for themselves. All five members of the PCAOB make more than President Obama himself.
In 2008, PCAOB Chairman Mark Olson took home $654,406 in 2008 and the four other members received $531,995. The U.S.
President, by contrast, makes $400,000 a year. The PCAOB salaries also exceed the cap of $500,000 set by the Obama
administration for chief executives of banks taking federal bailout dollars.
The PCAOB's lack of an accountable structure has likely contributed to what members of both parties see as its policy failures. It
did not foresee the disclosure issues for firms reporting subprime securities. Even staunch PCAOB defender Jane Bryant Quinn
strained in her syndicated column to put the best spin on this dismal record by saying that "subprime issues" were "at the top of
the board's priority list"
At the same time, during most of the six years since it was created by Sarbanes-Oxley, the PCAOB hurt legitimate entrepreneurial
companies by stretching the term "internal control" in Sarbanes-Oxley's section 404 to company minutiae that had no relevance to
investors. As a Journal editorial had noted, one public company's accountant was even auditing items like which employees had
office keys.
A Brookings-American Enterprise Institute study found that all of Sarbanes-Oxley's provisions – mostly enforced by the PCAOB –
have cost the U.S. economy more than $1 trillion in direct and indirect costs. And Democrats and Republicans have expressed
dismay at the increased costs of smaller companies going public – especially at a time when growth capital is so hard to come by
through the debt markets. Sen. John Kerry, D-Mass., for instance, has called for a task force to "make it easier for small
businesses to comply with the Sarbanes-Oxley by reducing their regulatory burden."
Should we prevail, senators like Mr. Kerry could very well raise those questions with the president's PCAOB nominees at their
confirmation hearings, just as is done with appointments of other principal officers. This increases our confidence of better public
policy outcomes under the constitutional process, even with a Senate and presidency under Democratic control.
Regardless, as Judge Kavanaugh pointed out in his eloquent appeals court dissent, "The framers of our constitution took great
care to ensure … that one individual would be ultimately responsible and accountable for the exercise of executive power. The
PCAOB contravenes these bedrock constitutional principles, as well as long-standing Supreme Court precedents, and it is
therefore unconstitutional."
Mr. Starr is the Duane and Kelly Roberts Dean at Pepperdine Law School and a retired federal appeals court judge. Mr. Dinh is professor of Law at
Georgetown University Law Center and a former assistant attorney general of the United States. They are counsel to the plaintiffs in Free Enterprise
Fund v. Public Company Accounting Oversight Board. John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise
Institute, assisted with this article.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
MAY 13, 2009
The PCAOB: An Obstacle to President Obama's Success
By KENNETH W. STARR and VIET DINH
As lawyers who have served in various posts in three Republican Administrations, we respectfully disagree with many of President
Obama's domestic policy initiatives.
But as members of a loyal American opposition, we certainly want the U.S. economy to succeed under his tenure. Moreover, as
attorneys who revere the U.S. Constitution, we want our nation's President to have all the authority this document gives him to
control the various federal agencies that carry out the nation's economic policy.
That's why we are now seeking review from the Supreme Court over a case we first brought during the administration of George W.
Bush challenging the structure of an agency that has great economic impact yet operates almost entirely outside the President's
control. We, along with Republican lead counsel Michael Carvin and attorneys with the free-market Competitive Enterprise
Institute, are asking the Court to give President Obama the power he is constitutionally entitled to exercise over this entity that
affects so many shareholders and entrepreneurs: the Public Company Accounting Oversight Board.
Created by the Sarbanes-Oxley Act of 2002, in the wake of the Enron and WorldCom accounting scandals, the PCAOB has broad
powers to set auditing standards for public companies and to investigate and discipline accounting firms that audit public
companies. Bills pending in Congress would expand the PCAOB's jurisdiction to non-public broker dealers as a response to the
Ponzi scheme at privately held Madoff Securities.
But before it is given any new power to supervise more entities, the PCAOB must itself be subject to supervision by President
Obama. He must have the power – as he does for virtually every other governmental entity Cabinet-level departments to the
Federal Reserve – to appoint PCAOB heads and remove them for cause if not at will.
In writing the 2002 law, Congress created a striking Constitutional anomaly – a powerful executive branch agency with a structure
that gives the President almost no say over its policies. With minimal oversight and no real supervision, the PCAOB decides which
accounting firms to inspect and how to conduct an investigation. It interprets sections of Sarbanes-Oxley, deciding, for instance,
what is an "internal control" under the act's Section 404. It was also given the power to levy an "accounting support fee," essentially
a tax on all public companies, to fund its operations.
Yet, under the law, the five members who run the PCAOB are appointed not by the President – but by the five commissioners of the
SEC. We hold that this violates the Constitution's Appointments Clause, which states clearly that principal "officers of the United
States" shall be appointed only by the President "with the advice of and consent of the Senate."
The "constitutional flaws in the PCAOB statute are not matters of mere etiquette or protocol," Judge Brett Kavanaugh of the federal
appeals court of the District of Columbia wrote last summer. "By restricting the President's authority over the board, the act renders
this Executive Branch agency unaccountable and divorced from Presidential control to a degree not previously not previously
countenanced in our constitutional structure."
That's why, in his strongly worded dissenting opinion, Judge Kavanaugh called our challenge to the PCAOB "the most important
separation-of-powers case regarding the president's appointment and removal powers to reach the courts in the last 20 years."
Unfortunately, the Justice Department of the Obama administration has followed the line of the Bush DOJ in saying our challenge
is much ado about nothing. While conceding that -- despite the statute's labeling of it a non-profit corporation -- the PCAOB is
indeed a government agency for constitutional purposes, the DOJ insists that the governance structure is fine because the PCAOB
leaders are merely "inferior officers."
While we contend that even if the PCAOB heads were somehow found to be lower-ranking officers, the structure would still not
pass not pass constitutional muster, it is interesting to note on striking characteristic about these officials said to be "inferior:" the
salaries they set for themselves. All five members of the PCAOB make more than President Obama himself.
In 2008, PCAOB Chairman Mark Olson took home $654,406 in 2008 and the four other members received $531,995. The U.S.
President, by contrast, makes $400,000 a year. The PCAOB salaries also exceed the cap of $500,000 set by the Obama
administration for chief executives of banks taking federal bailout dollars.
The PCAOB's lack of an accountable structure has likely contributed to what members of both parties see as its policy failures. It
did not foresee the disclosure issues for firms reporting subprime securities. Even staunch PCAOB defender Jane Bryant Quinn
strained in her syndicated column to put the best spin on this dismal record by saying that "subprime issues" were "at the top of
the board's priority list"
At the same time, during most of the six years since it was created by Sarbanes-Oxley, the PCAOB hurt legitimate entrepreneurial
companies by stretching the term "internal control" in Sarbanes-Oxley's section 404 to company minutiae that had no relevance to
investors. As a Journal editorial had noted, one public company's accountant was even auditing items like which employees had
office keys.
A Brookings-American Enterprise Institute study found that all of Sarbanes-Oxley's provisions – mostly enforced by the PCAOB –
have cost the U.S. economy more than $1 trillion in direct and indirect costs. And Democrats and Republicans have expressed
dismay at the increased costs of smaller companies going public – especially at a time when growth capital is so hard to come by
through the debt markets. Sen. John Kerry, D-Mass., for instance, has called for a task force to "make it easier for small
businesses to comply with the Sarbanes-Oxley by reducing their regulatory burden."
Should we prevail, senators like Mr. Kerry could very well raise those questions with the president's PCAOB nominees at their
confirmation hearings, just as is done with appointments of other principal officers. This increases our confidence of better public
policy outcomes under the constitutional process, even with a Senate and presidency under Democratic control.
Regardless, as Judge Kavanaugh pointed out in his eloquent appeals court dissent, "The framers of our constitution took great
care to ensure … that one individual would be ultimately responsible and accountable for the exercise of executive power. The
PCAOB contravenes these bedrock constitutional principles, as well as long-standing Supreme Court precedents, and it is
therefore unconstitutional."
Mr. Starr is the Duane and Kelly Roberts Dean at Pepperdine Law School and a retired federal appeals court judge. Mr. Dinh is professor of Law at
Georgetown University Law Center and a former assistant attorney general of the United States. They are counsel to the plaintiffs in Free Enterprise
Fund v. Public Company Accounting Oversight Board. John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise
Institute, assisted with this article.
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
POINT OF CLARIFICATION: The Press like to attempt to discredit our firm by emphasizing that our2004 inspection report
identified 8 audit deficiencies. They fail to further clarify that we have satisfied the PCAOB and their inspection findings to the
fullest extent, and that we received the following "clearance" letter dated June 25, 2007:
identified 8 audit deficiencies. They fail to further clarify that we have satisfied the PCAOB and their inspection findings to the
fullest extent, and that we received the following "clearance" letter dated June 25, 2007: