In this TCS Daily op-ed, the inimitable Professor Bainbridge takes up the lawsuit filed in Washington last week in which an activist think tank asserts that that the Sarbones-Oxley Act’s Public Company Accounting Oversight Board (nicknamed the “Peekaboo board”) is unconstitutional. The think tank’s lawsuit is based on this John Berlau/Hans Bader white paper for the Competitive Enterprise Institute that analyzes the consititutional issues arising from the Peekaboo board’s creation.
The core assertion in the lawsuit is that the Peekaboo board is vested with extensive governmental functions and powers, including the quasi-law enforcement investigatory power and a quasi-judicial power to impose substantial fines for violations of its rules. Inasmuch as the members of the Peekaboo board are appointed by the SEC rather than the President, the lawsuit contends that SOX’s provision providing for creation of the Peekaboo board violates, inter alia, the appointments clause of the U.S. Constitution. Moreover, since SOX lacks a severability clause, the potential defect in a part of the Act may mean that the entire Act must be declared unconstitutional.
Professor Bainbridge thinks that the lawsuit has legs:

There is also little oversight [of the Peekaboo board]. The only way the SEC can undo any of the [Peekaboo board’s] regulations is by proving that the rules are obviously inconsistent with the Sarbanes-Oxley statute — a nearly impossible task given its vague wording. The [Peekaboo board] is even largely independent of Congressional oversight because its budget is financed from the fees it levies on the companies it regulates. The Justice Department may well argue in response that the Board simply doesn’t rise to the level of a “real” agency. But that will surprise corporate America, given that the Peekaboo can fine accounting firms up to $2 million and individual accountants up to $100,000 for violations.
And, of course, familiar principles of agency capture by the industries it regulates suggest that interest group pressures and favoritism are potentially serious problems.

Read the entire piece, along with this analysis of the lawsuit by Constitutional scholar and Bainbridge colleague, Eugene Volokh.
As Professor Ribstein has long maintained, SOX is more than just a bad law:

SOX wasn’t just a bad law, but a uniquely bad law, passed under uniquely bad conditions without any of the safeguards that normally accompany major legislation.
And even if repeal or drastic shrinkage is impossible, it’s still necessary to make the case as a warning against future SOX’s. One way to do that is to establish SOX as a paradigm of bad law. In other words, to make Sarbanes and Oxley the Edsel Fords of corporate governance regulation.