From Larry Ribstein:
A few years later, Henry Butler and I wrote a book decrying SOX, and discussing the evidence that was accumulating against it, as well as the SOX suit. Here’s an excerpt from the book abstract:
If the suit is successful, Congress likely will have an opportunity to repair the constitutional defect. Although political reality suggests that Congress will not abandon SOX, it may respond to the mounting criticism by fixing its most egregious faults.
The pro-SOX media and pundits scoffed at the suit. But as I pointed out back in 2008 when some DC Circuit judges appeared receptive to plaintiff’s argument, the suit “may actually have some legs.”
The appellate court rejected the suit, but the Supreme Court agreed to hear it. I joined an amicus brief arguing for unconstitutionality.
Now the pundits have retrenched a little to the position that even if the PCAOB goes, the rest of the act will be saved despite the absence of a severability clause. But the pundits have been surprised how far this suit has gotten already, and they may well be surprised again.
Meanwhile, Congress is thinking about amending the law to exempt small firms. This bill gives some indication of what might happen to SOX if the whole thing has to go back to Congress.
As I said back in 2006:
SOX wasn’t just a bad law, but a uniquely bad law, passed under uniquely bad conditions without any of the safeguards that normally accompany major legislation. And even if repeal or drastic shrinkage is impossible, it’s still necessary to make the case as a warning against future SOX’s. One way to do that is to establish SOX as a paradigm of bad law. In other words, to make Sarbanes and Oxley the Edsel Fords of corporate governance regulation.
I’ve been watching the SOX debacle play out for seven years. It will be interesting to see how this ends.
