June 29, 2010

SCOTUS Invalidates Part of Sarbanes-Oxley – But the PCAOB Lives!

My travel yesterday took a page from “Planes, Trains & Automobiles” – so it was humorous to first see a CNBC text that the stock market was up because the US Supreme Court had stricken the Sarbanes-Oxley Act, only to find out that the 5-4 decision in Free Enterprise Fund v. PCAOB was not so dramatic. [Recall that this is the case for whose oral arguments’ “sights & sounds” I covered in this blog.]

Not surprisingly, the Supreme Court found that the provision of the Sarbanes-Oxley Act that only permitted the SEC to remove board members for cause violated the Constitution’s separation of powers doctrine. But thankfully cooler heads prevailed and the majority limited the remedy by excising that limitation from the law with a fix that the SEC can remove PCAOB board members at will going forward.

So in finding this provision severable from the rest of Sarbanes-Oxley – including the other parts of Title I that provide the PCAOB with the authority to function – business will go on as usual at the PCAOB and Congress doesn’t even need to legislate to provide a fix (as noted in this PCAOB press release; here is the SEC’s statement).

The most immediate consequence of this decision could be the appointment of three PCAOB board members by the SEC, which has refraining from taking action until SCOTUS ruled (as noted in this Washington Post article). There could be other ramifications from the SCOTUS decision; this Gibson Dunn memo notes: “Although this comparatively narrow holding may raise other issues, such as whether the Board’s prior actions are constitutionally valid and whether the Board will now be subject to federal budgetary control, it permits the Board to continue to function without further action by Congress or the SEC.”

Yesterday was a big day for SCOTUS as it was Justice Stevens last day and many in the audience sported a bow-tie in his honor. In addition, Elana Kagan’s confirmation hearing started in the Senate. Unfortunately, Justice Ginsburg’s long-time husband passed away the day before. And the USA Today contained poll results that two-thirds of Americans can’t name a single Supreme Court Justice…

In Love? SCOTUS Falls for Plenty of Securities Law Cases

Here is an excerpt from Kevin LaCroix’s “D&O Diary” Blog:

There was a time when it was relatively rare for the Supreme Court to take up securities cases. Until recently, the Court basically went several years between cases filed under the securities laws. Those days are clearly over, as the Court has granted cert petitions in several securities cases in recent years, including the Merck and National Australia Bank cases this term.

The Court has now granted cert in a securities suit for next term as well. On June 14, 2010, the Supreme Court granted the petition for a writ of certiorari in the Matrixx Initiative case.

And yesterday, Kevin reports that SCOTUS granted yet another petition for writ of certiorari in a case – Janus Capital Group, Inc. v. First Derivative Traders – arising under the securities laws. Although the case arises out of the specific context of a mutual fund market timing case, it raises fundamental issues about who may be a “primary violator” under the securities laws. The Court seems poised to delve yet again into critical issues under the federal securities laws.

Critical FCPA Diligence in Deals Today

Tune in tomorrow for the webcast – “Critical FCPA Diligence in Deals Today” – to hear Brian Saulnier of K&L Gates, Soren Lindstrom of K&L Gates, Keith Hennessee of National Oilwell Varco and Susan Munro of Steptoe & Johnson discuss the latest in how diligence is being conducted and how reps & warranties related to FCPA violations are being negotiated.

– Broc Romanek