Supreme Court to decide on reform act

Sign displayed at the signing of the Sarbanes-Oxley Act

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KAI RYSSDAL: Next week sometime, the House of Representatives is going to start debating new regulations for the financial industry. But savvy lawmakers will be paying close attention to what's happening across the street. Monday morning, the Supreme Court will hear arguments in a case about the last big financial reform. A little law you might have heard of known as Sarbanes-Oxley.

From Washington, Marketplace's John Dimsdale explains.


John Dimsdale: Congress's response to big accounting scandals a decade ago was to set up an independent board to police the accounting industry. After undergoing a costly audit in 2006, a small Nevada accounting firm filed suit. It claimed the board's membership, appointed by the Securities and Exchange Commission, violates the Constitution. By law, officials with far-reaching executive powers must be accountable to the president. A lower court concluded that's not necessary, because board members are "inferior officers," therefore don't have to be presidential appointees. But Hans Bader, one of the lawyers for the Nevada firm, says this is no inferior agency.

Hans Bader: Both the board's detractors and supporters say it's incredibly important. Detractors say it has wiped out a trillion dollars worth of value in the stock market and cost tens of billions of dollars a year. Its supporters attribute to it mystical powers of restoring confidence in the capital markets.

Seven former SEC chairmen, including David Ruder, filed briefs in the case saying their old agency provides plenty of board oversight.

David Ruder: I perceive this as a more broad-gauged attack on the Sarbanes-Oxley legislation itself. And perhaps by some as an attack on the independent agency approach in the federal government.

Meaning, using regulators to oversee business, which is just what Congress is considering with its financial regulatory overhaul. If the Supreme Court decides the accounting board is unconstitutional, Congress could fix the problem by either folding the board into the SEC or giving the president the power to appoint its members.

In Washington, I'm John Dimsdale for Marketplace.

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