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Supreme Court Considering Constitutionality of SOX

1 Apr 2010

Fairfield, NJ - April 1, 2010 - In December 2009, the U.S. Supreme Court heard oral arguments in the case Free Enterprise Fund v. Public Company Accounting Oversight Board (PCAOB).  A nonprofit public interest organization and an accounting firm brought this case seeking a judgment that the Sarbanes Oxley Act violates the U.S. Constitution because Board members are not appointed or removed by the President, but by the Securities and Exchange Commission for good cause.

The District Court ruled in favor of the PCAOB Board and the United States which argued that the PCAOB was composed of inferior officers within the meaning of the Appointments Clause of the Constitution and that the SEC may be granted appointment powers for these officers.   The Court of Appeals for the D.C. Circuit also held in favor of the PCAOB ruling that the President’s ability to appoint and remove SEC Commissioners who, in turn, may appoint PCAOB Board members, preserved sufficient Executive branch influence to allow the President to conduct his constitutional duties.

If the Supreme Court rules against the government and the PCAOB, Congress and the Obama administration could likely amend the law to call for Presidential appointment of PCAOB board members or to allow at will removal of PCAOB board members by the SEC.

A Supreme Court ruling is expected this spring.