Supreme Court Strikes Down One Part of Sarbanes-Oxley

The U.S. Supreme Court has struck down one part of the controversial Sarbanes-Oxley Act, ruling Monday that Congress overstepped its authority when establishing the Public Company Accounting Oversight Board (PCAOB), an investigatory panel focused on enforcing the eight-year-old law.

The court, in a 5-4 opinion written by Chief Justice John Roberts, ruled that Congress erred when setting up the board and allowing the U.S. Securities and Exchange Commission, which appoints board members, to remove them only "for good cause shown." Congress also wrongly limited the power of the U.S. president, who under Sarbanes-Oxley could not directly remove board members.

The court, however, left the rest of Sarbanes-Oxley alone. The 2002 law, widely criticized in the tech industry for adding unneeded expenses to IT projects, remains "fully operative as a law," Roberts wrote.

Among other things, Sarbanes-Oxley requires public companies to document their internal controls. Congress created the law partly in response to corporate accounting scandals at Enron, WorldCom and other companies. Authors of the law, often called SOX, set out to reduce fraudulent financial dealings and provide oversight of public companies.

Roberts focused narrowly on the appointment and removal process for PCAOB members in his opinion in Free Enterprise Fund v. Public Company Accounting Oversight Board. SOX leaves the removal of board members to the SEC, when the president should have the authority under the U.S. Constitution, he wrote.

The U.S. president cannot perform his duty to enforce laws "if he cannot oversee the faithfulness of the officers who execute them," Roberts wrote. "Here the President cannot remove an officer ... even if the President determines that the officer is neglecting his duties or discharging them improperly. That judgment is instead committed to another officer, who may or may not agree with the President's determination, and whom the President cannot remove simply because that officer disagrees with him."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.

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