• US Supreme Court Invalidates “For Cause” Removal Limits of Sarbanes-Oxley Act but Allows the Public Company Accounting Oversight Board to Continue Operating
  • July 15, 2010 | Authors: Elissa J. Preheim; Scott B. Schreiber
  • Law Firm: Arnold & Porter LLP - Washington Office
  • On June 28, 2010, the US Supreme Court invalidated provisions of the Sarbanes-Oxley Act (“Act”) that had permitted only “for cause” removal of members of the Public Company Accounting Oversight Board (“PCAOB” or “Board”). Free Enterprise Fund v. PCAOB, No. 08-861, 561 U.S. (2010). Because Board members were removable only for cause by the Securities and Exchange Commission (SEC), the Commissioners of which are only removable by the US President for cause, the result was a Board that exercised executive power but was not accountable to the President. Therefore, the Court held that the Act’s “dual for-cause” removal restrictions violated the Constitution’s separation of powers. The Supreme Court held, however, that the infirm provisions were severable, leaving the remainder of the Act intact. Further, it upheld as constitutional the SEC’s appointment of PCAOB’s members. The Supreme Court concluded that on remand the Petitioners were entitled to declaratory relief “sufficient to ensure that the reporting requirements and auditing standards to which they are subject will be enforced only by a constitutional agency accountable to the Executive,” but it denied the request for broad injunctive relief against the PCAOB’s continued operations. www.arnoldporter.com