Supreme Court Ruling on the PCAOB

The Constitutionality of Sarbanes-Oxley and the Future of Independent Federal Regulatory Agencies

Lara Daniel, MBA, JD

On February 7, 2006, the Free Enterprise Fund, along with the accounting firm of Beckstead and Watts, LLP, filed a lawsuit against the Public Company Accounting Oversight Board (PCAOB) in the U.S. District Court for the District of Columbia, challenging the constitutionality of the Sarbanes-Oxley Act of 2002 (SOX). The case was decided by the U.S. Supreme Court on June 28, 2010 (Free Enterprise Fund v. PCAOB,No. 08-861, 561 U.S.__[2010]). While the outcome is not as sweeping as some expected, it will affect the way the PCAOB functions and may also affect the manner in which Congress creates federal agencies in the future. This article examines the arguments that were presented as the case progressed through the federal court system, explains the holdings of the Supreme Court, and identifies the potential ramifications of the decision.