The Jones Day Lawyers Looking to Take Down SOX

[WSJ Law Blog]

On Thursday, we previewed a case gearing up at the Supreme Court for which we’re extremely excited.

Coming in a distant second (but second nonetheless) is Free Enterprise and Beckstead and Watts v. PCAOB and U.S. At issue: the constitutionality of a section of the 2002 Sarbanes-Oxley Act, the anti-fraud legislation passed in the wake of the Enron/Worldcom era.

Specifically, the case will settle the constitutionality of the Public Company Accounting Oversight Board (“PCAOB”) created as part of SarbOx. The case raises two constitutional questions: whether the provisions of SarbOx creating PCAOB violate the Constitution’s separation of powers; and whether it violates the Appointments Clause. If the high court shoots down the PCAOB, it could spell the death of SarbOx.

For more on the issues involved in the case, click here for a nice overview from a Paul Hastings client alert.

But for now, we’d like to turn your attention to the lawyers on the case challenging SarbOx, courtesy of an interesting story out Thursday in Business Week. They’re Michael A. Carvin and Noel J. Francisco, both partners at Jones Day and both conservatives.

Carvin and Francisco are handling the case pro bono, as it turns out; so fervent are they in their belief in limited government. “If you believe [in] limiting government, you’re much more zealous,” says Francisco to BW.

But in Beckstead, the challenge for the duo is steep. The PCAOB was established as an independent nonprofit largely to let it pay market wages for its workers and to shield it from political influence. In 2004 the PCAOB audited Beckstead & Watts, a small auditing firm. The result was a detailed report listing deficiencies based on the SarbOx rules. As a result of the time and expense, Beckstead says, he was forced to shut down his auditing practices.

Carvin and Francisco argue that the Constitution requires Presidential appointment of the top members of so powerful a body as the PCAOB. (PCAOB members are appointed by the SEC.) The lawyers also contend that PCAOB’s members are largely beyond Presidential discipline because of a variety of restrictions on their removal.

The PCAOB argues that it is constitutional. Backers say its members are low-level officers who don’t have to be appointed by the President, and say the President and the SEC have plenty of tools to govern the board.

But the Beckstead may be only the beginning for Carvin and Francisco, who next plan to train their sights on the Obama Administration. “The stakes are enormous, and you have agencies getting into all kinds of areas they’ve never gotten involved in,” Carvin says, adding: “it’s a target-rich environment.”