Supreme Court to Decide Validity of Anti-Fraud Law

The Supreme Court will rule on the validity of a landmark anti-fraud law that served as Congress' response to the wave of corporate scandals starting with Enron.

The justices said Monday they will consider a constitutional challenge to the 2002 Sarbanes-Oxley law from pro-business conservatives, who complained that the board established to oversee the accounting industry violates the constitutionally mandated separation of powers.

The law reshaped corporate governance after the accounting scandals of 2001-2002 at Enron Corp., WorldCom Inc., Tyco International Ltd. and other major corporations exposed inadequate internal controls and auditors who had become too cozy with the companies whose books they examined. The law was upheld in a 2-1 ruling by a panel of a federal appeals court in Washington last August.

The opponents first brought their case in 2006, predicting that it likely would end up before the Supreme Court. They argue that the makeup of the accounting board violates the separation of powers doctrine because its members aren't appointed by the president, cannot be removed by him, and Congress cannot control its budget.

The Securities and Exchange Commission, an independent federal agency, appoints the chairman and four directors of the Public Company Accounting Oversight Board. The accounting board is funded by fees on publicly traded companies according to their size.

Congress created the board to replace the accounting industry's own regulators amid the business scandals, giving it subpoena power and the authority to discipline accountants.

"We remain confident that the PCAOB's structure is constitutional and look forward to our opportunity to demonstrate that in the Supreme Court," Colleen Brennan, a spokeswoman for the board, said Monday.

SEC spokesman John Nester said the agency agrees with the appeals court's ruling and believes that "Congress acted properly and within its constitutional authority when it established the accounting oversight board to protect investors."