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View Full Version : Supreme Court Upholds Sarbanes-Oxley Act




bobbyw24
06-28-2010, 12:02 PM
By FLOYD NORRIS

The Supreme Court on Monday unanimously rejected a challenge to the constitutionality of the 2002 Sarbanes-Oxley law, which sought to reform corporate America following the Enron and WorldCom accounting scandals.

The court turned aside a broad challenge to one part of the law, which established the Public Company Accounting Oversight Board to regulate the accounting industry. Some commentators had forecast that the court might throw out the entire law because of problems with the way the accounting board is appointed, but the justices refused to do so.

Instead, in a 5-to-4 split, the court found that the way members of the oversight board could be removed was unconstitutional.

As a result of that decision, the Securities and Exchange Commission, which appoints the five members of the board, will now be able to remove members at will, rather than only if there is good cause.

“The Sarbanes-Oxley Act remains ‘fully operative as a law’ with these tenure restrictions excised,” wrote Chief Justice John Roberts in the majority opinion.

The court majority 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.

“Concluding that the removal restrictions are invalid leaves the board removable by the commission at will, and leaves the president separated from board members by only a single level of good-cause tenure,” the chief justice wrote. “The commission is then fully responsible for the board’s actions, which are no less subject than the commission’s own functions to presidential oversight.”

The Sarbanes-Oxley Act was signed into law at a time when the financial world was rocked by almost daily revelations of corporate scandal.

The law came less than a year after the collapse of Enron, which was followed by a wave of other, spectacular corporate failures that exposed regulatory shortcomings. There was the scandal connected to Tyco International, for example, which acknowledged that its corporate culture had openly encouraged managers to inflate its earnings, and other high-profile cases including WorldCom and Global Crossing.

http://www.nytimes.com/2010/06/29/business/29accounting.html?src=mv