Supreme Court Upholds Constitutionality of SOX (mostly)
By Cydney Posner
Following is a link to the SEC's statement regarding the Supreme Court's decision in Free Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board and United States of America, as well as a write-up of the decision in The New York Times. The case involved a challenge to the constitutionality of SOX on the basis that the PCAOB violated the principles of separation of powers. In a 5-to-4 split, the Court held that the restriction on removal of members of the PCAOB under SOX does violate the principles of separation of powers. Most importantly, however, the Court found that the offending provision was severable from the remainder of the SOX, so that SOX "remains fully operative as a law" except for the for-cause restrictions. According to the SEC, the opinion does not call into question any action taken by the PCAOB since its inception.
According to the article, the Court "concluded that the Constitution did not allow two levels of ‘good cause' review to separate the president from firing people in his administration. He needs good cause to fire S.E.C. commissioners, so they could not need good cause to fire people they appoint." Excision of the restrictions makes the SEC "fully responsible for the board's actions, which are no less subject than the commission's own functions to presidential oversight." As a result, the SEC will be able to remove PCAOB members at will, rather than only if there is good cause.