Parts of Sarbanes-Oxley Ruled Unconstitutional (TYC)

In a 5-4 decision, the United States Supreme Court struck down key portions of the Sarbanes-Oxley Act of 2002, which created a national entity to supervise auditors of public companies. The case is known as Free Enterprise Fund v. Public Company Accounting Oversight Board, 08-861. The court ruled that the Public Company Accounting Oversight Board violated the constitution's requirement on the separation of powers among the judicial, legislative and executive branches of government. Justices in the majority stated that the panel was too far removed from presidential control to be in line with the constitution's doctrine on the separation of powers, and added that the president must have more control to remove, appoint and supervise members of the board. The 2002 law, named for the bill's co-sponsors, Democrat Paul Sarbanes and Republican Michael Oxley, was enacted in response to the wave of corporate accounting and fraud scandals at Enron, Tyco TYC, WorldCom and other businesses in the early 2000's. It established the Public Company Accounting Oversight Board, which was tasked with the oversight and regulatory enforcement of of accounting practices at publicly held firms. It was widely approved by 423-3 in the US House and 99-0 in the US Senate. However, it is widely criticized for raising accounting costs to be so prohibitively high that companies choose to remain private and harming the competitiveness of smaller firms. The ruling now thrusts the issue upon a Congress with both a full agenda and an increasingly polarized political environment as mid-term elections approach. With the PCAOB struck down by the court, it leaves a gap in regulation and enforcement until Congress re-establishes the board with the stipulations given by the Supreme Court decision. This also gives Congress the opportunity to re-examine the criticisms of the bill and make it more efficient after having seen its negative aspects over the past eight years. Principal among them will likely be the enormous cost burden on smaller firms that bar them from providing competition in the equity markets. --Alex Schiff