Supreme Court Upholds Constitutionality of the Public Company Accounting Oversight Board, Requires Changes to its Oversight Structure But Declines to Invalidate SOX
By Peter M. Stone, Edward Han, & Michael W. Stevens
On June 28, 2010, the Supreme Court announced its ruling in Free Enterprise Fund, et al. v. Public Company Accounting Oversight Board, et al., 561 U.S. ___ (2010) requiring changes to the oversight structure by the Securities and Exchange Commission (SEC) of the Public Company Accounting Oversight Board (the PCAOB) but declining to invalidate the entirety of the Sarbanes-Oxley Act of 2002 (SOX). The Court found that the for cause removal oversight structure by the SEC of the PCAOB in SOX was an unconstitutional encroachment upon executive branch power; however, it held that such oversight structure was severable from the rest of SOX. Thus, what could have been a case with major ramifications for SOX compliance and securities litigation if decided differently will instead entail little, if any, practical change in those legal areas. The case is, however, a significant Constitutional separation of powers ruling.