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SOX Under Fire

Ken Starr is the ultimate beltway insider. The former White House independent counsel is one of the most powerful attorneys in Washington, D.C., and as a former judge on the D.C. Circuit Court of Appeals, he knows a thing or two about what it takes to successfully challenge federal regulators.

The Starr factor is why the legal community is paying attention to a lawsuit that would otherwise seem like a shot in the dark--a suit aimed at taking down SOX. Along with powerhouse attorneys Michael Carvin (President Bush's counsel in the Florida ballot controversy) and Viet Dinh (a key figure in the development of the Patriot Act), Starr filed the suit Feb. 10 on behalf of a Nevada-based accounting firm and small-government advocates The Free Enterprise Fund. Specifically, the plaintiffs allege that the Public Company Accounting Oversight Board (PCAOB)--the agency charged with enforcing SOX--violates the Constitution's Appointments Clause and the constitutional separation of powers. Moreover, because SOX doesn't have a severability clause, the plaintiffs say that a win on the PCAOB issue means the court will have to invalidate the whole law.

An ironic twist to the case is that it might be scuttled based on Morrison v. Olson, in which the Supreme Court held that the powers of the independent counsel--Ken Starr's previous job--didn't violate the Appointments Clause or separation of powers.

"Morrison recognizes that there are many inferior officers out there exercising executive and judicial functions in limited spheres that do not have to be appointed by the president," says Robert Ray, a partner at Kelley Drye & Warren.

Although adoption of the ACSPC recommendations would not have as broad an impact on SOX as the success of Starr's lawsuit, the ACSPC may pave the way for future changes to SOX.

"'This costs too much' isn't an argument that wins in court," Stewart says. "But that's the subtext of the lawsuit. The SEC commissioners are receptive to discussing whether certain costs are necessary, especially for small companies."

staff Writer

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