First Monday Of October: Supreme Court Cases Of Interest To The Financial Fraud Law Blog

Good morning! It’s the first Monday in October, and the U.S. Supreme Court’s new term begins today. There are many business cases on the docket, but two that we at the Financial Fraud Law Blog find of particular interest are Free Enterprise Fund v. Public Company Accounting Oversight Board, and Jones v. Harris Associates.

 
The PCAOB was created by Congress in the Sarbanes-Oxley Act of 2002 to oversee accounting firms; the question before the Supreme Court is whether the provisions of the Sarbanes-Oxley Act that created the PCAOB are constitutional. If the Supreme Court rules in favor of the petitioners in finding that the PCAOB is unconstitutional, this could mean the end of the PCAOB (and possibly SOX since there is no severability provision in SOX). The Court’s upcoming ruling in this case might affect the ability of Congress to structure financial regulatory reform in the future. Subscribers can learn more in the Fraud Law Report by Peter M. Stone, Edward Han and Stacy E. Wiesbrock, “Supreme Court to Rule on Constitutionality of SOX’s Public Company Accounting Oversight Board: Free Enterprise Fund, et al. v. PCAOB, et al.,” posted at http://www.financialfraudlaw.com/content/supreme-court-rule-constitutionality-sox%E2%80%99s-public-company-accounting-oversight-board-free-en.
 
The Jones case involves a challenge to allegedly excessive mutual fund fees – an issue arising in the context of challenges to executive compensation generally. Interestingly, Seventh Circuit Court of Appeals Judge Richard Posner wrote in this case that “executive compensation in large, publicly traded firms often is excessive because of the feeble incentives of boards of directors to police compensation.” If the Court agrees that the judiciary is an appropriate arm of government to regulate executive pay, one can expect substantial litigation over compensation in the future.