) -- The Supreme Court has ruled against a provision of the Sarbanes-Oxley legislation that created the Public Company Accounting Oversight Board (PCAOB) in the wake of the early 2000s scandals on





The Supreme Court has ruled that the Public Company Accounting Oversight Board (PCAOB) violated the U.S. Constitution in the way in which its directors are appointed. The ruling relates to the separation-of-powers principle, and the executive branch appointing of SEC Commissioners, who in turn have oversight of the accounting board. PCAOB board members are not appointed by the president. The high court did not say that the PCAOB could not exist, but that its current structure, and the manner in which board members were appointed, violated the constitution.

It's the second consecutive week with an Enron-related decision from the high court. Last week, the Supreme Court ruled that former Enron CEO Jeffrey Skilling could not be convicted of fraud using a "honest services" test that the Supreme Court deemed as being too vague.

The Skilling decision sent prosecutors back to lower courts to find another legal means to make various fraud convictions related the Enron implosion stick to Skilling. The Sarbanes-Oxley decision has more far-reaching consequences for all corporations.

The Supreme Court ruling doesn't question the legality of Sarbanes-Oxley, but could send Congress back to the drawing board in terms of finding a way to improve the appointment process without running afoul of the Supreme Court's view of the constitution. The ruling states that the SEC can hire or fire PCAOB board members without invoking the "good cause" standard with which the President can fire SEC Commissioners.

TST Recommends

Sarbanes-Oxley opponents argued that the creation of the PCAOB violated the Appointments Clause, the separation of powers doctrine, and non-delegation principles, as it did not permit adequate Presidential control of the PCAOB.

A previous U.S. District Court decision rejected that argument, saying that the SEC oversight of the PCAOB was adequate as an extension of executive power over the accounting body.

The government defense of the PCAOB in the Supreme Court was led by Supreme Court nominee Elena Kagan.

-- Reported by Eric Rosenbaum in New York.


>>High Court Sides With Skilling

Follow on


and become a fan on


Copyright 2009 Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.