The Supreme Court ruled against the Public Company Accounting Oversight Board in a 5-4 decision, finding that the way board members are appointed is unconstitutional.

In the closely watched case, the court ruled that limitations on the power to remove the members of the PCAOB are unconstitutional under the separation of powers doctrine. The court also found that the board members are inferior officers, and the method of appointment under the Sarbanes-Oxley Act violates the Appointments Clause.  The result reverses in part, affirms in part, and remands.

Chief Justice John Roberts wrote the majority opinion, supported by Clarence Thomas, Antonin Scalia, Samuel Alito, and Anthony Kennedy. Justices Stephen Breyer, John Paul Stevens, Ruth Bader Ginsburg and Sonia Sotomayor dissented.

In the case, Free Enterprise Fund v. PCAOB, the conservative advocacy group sued the PCAOB along with an accounting firm, Beckstead & Watts, that had received some criticisms of deficiencies in of its audits in one of its periodic audit evaluations by the PCAOB. The plaintiffs lost the case in two lower court decisions.

"I’m very happy that the Supreme Court was able to find in favor for us," said Beckstead & Watts Managing Partner Brad Beckstead in an interview. "I’m happy that they went straight to the source of the problem and found a way to fit the unconstitutional portion of the Sarbanes-Oxley Act."

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.