One reason Silicon Valley is struggling is that there's no longer an IPO market. This is making it difficult for VCs to exit investments, putting pressure on company valuations, making it harder to hire and retain people, driving companies to the London markets, etc.

Sarbanes-Oxley isn't the only reason the IPO market is dead, but it's part of it: Why spend millions of extra dollars a year complying with a law that won't make your investors the tiniest bit safer and might get you thrown in jail for life if you blow a quarter?

SARBOX should be rewritten just because it's expensive and ineffective: If a company really wants to defraud you, they'll do it with or without SARBOX, and honest companies were already held to high standards before the law was enacted (the reason so many dotcoms went bust was not that they were committing fraud: It was that they were risky, early-stage investments in a boom and bust cycle).

But if it takes a legal challenge to prompt SARBOX reform, then so be it. The Supreme Court will now revisit SARBOX's constitutionality. Here's hoping they find it ridiculous.

John Carney: [T]he Supreme Court will hear a constitutional challenge to Sarbanes-Oxley may spell trouble for the 2002 law that created a national board to oversee US public company auditors.



The reason the court’s decision to hear the case is so striking is that many of the usual reasons a case makes it to the Supreme Court are absent. There isn’t a split between different courts on the matter. There’s only been one constitutional challenge to the law that rose to the appeals court level, and there the court sided with the trial court by throwing out the complaint. The court’s decision to hear the case suggests that several justices have doubts about its constitutionality.



The case was brought by the Free Enterprise Fund and a smaller Nevada accounting firm. They argue that the law violates constitutional requirements on separation of powers because the board exercises executive functions but can’t be removed by the president. Members of the PCAOB are appointed by the SEC and can only be removed by the SEC for cause.

The challenge to Sarbox could have far more consequences than just abolishing the accounting oversight board or limiting its powers. Perhaps because of the haste with which the law was drafted, it contains no provision upholding the rest of the law if part of it is overturned. This could mean that if the Supreme Court overturns one part of the law, the entire Sarbox edifice would crumble.

See Also: Hey, Sarbanes And Oxley, You Killed Our IPO Market--Are You Happy?