U.S. Supreme Court Upholds Sarbanes-Oxley Act and Public Company Accounting Oversight Board, Severing Unconstitutional Removal Restrictions

On June 28, 2010, the Supreme Court of the United States rejected a broad constitutional challenge to the existence of the Public Company Accounting Oversight Board (the “Board”) and to the legitimacy of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. ___, No. 08-861 (June 28, 2010). While the Court narrowly held that Sarbanes-Oxley’s “dual for-cause” removal restrictions for Board members violate the separation of powers requirements of the U.S. Constitution, it determined that these removal provisions could be severed from the remainder of Sarbanes-Oxley. The Court’s ruling effectively permits the Board to continue to operate and Sarbanes-Oxley to remain in force unchanged, except that the Securities and Exchange Commission will now have the ability to remove Board members at will.