The day my OpEd in the Financial Times was published, July
30, there were many other stories in other publications marking the occasion of
Sarbanes-Oxley's tenth anniversary. Most of them focused on the lack of
prosecutions of CEOs and CFOs for false financial statement certification
I liked Michael Rapoport's in the Wall Street Journal a lot
because he's knowledgeable and takes a good tack in describing what should have
As the Sarbanes-Oxley Act turns 10 years old, the law's
biggest hammer-the threat of jail time for corporate executives who knowingly
certify inaccurate financial reports-is going largely unused.
After the financial crisis, the certification rules
seemed like a strong weapon against executives suspected of misleading
investors. But prosecutors haven't brought any criminal cases for false
certification related to the crisis. Regulators have brought only a handful of
crisis-related civil allegations in that area.
Rapoport quotes a statistic with no attribution that also
showed up in a Reuters account. It must have come directly from the SEC.
It's not publicly available anywhere on the SEC web site and I had not seen it
before. It can't be verified without a tedious accounting of all documents on
the SEC site and then another difficult separation of charges brought versus
actual settlements or resolutions that still include a Section 302 or 906
component. That doesn't always happen.
The SEC says it has brought civil false-certification
charges against more than 200 parties, including executives at companies
involved in the crisis like Fannie
Mac and Countrywide. (Countrywide is now part of Bank
of America Corp.) But the SEC hasn't used false certification against
executives from any of the major banks suspected of misleading the public about
their finances during the crisis.
Alison Frankel's pretty good piece at Thomson-Reuters focuses
on the criminal side of Section 302 and 906 certifications and says that
happens not hardly at all.
The Justice Department doesn't directly track
Sarbanes-Oxley prosecutions, so there may be another case here or there. Even
four or five SOX criminal cases in 10 years, though, makes them as rare as a
She mentions civil charges - depending on whether there's
scienter it can go either way - but says only, "the Securities and
Exchange Commission has brought dozens of civil cases alleging false
certification under Sarbanes-Oxley, including civil SOX charges in an
FCPA case the SEC filed in March."
Unfortunately, Frankel's colleagues over on the Reuters "Analysis" side of the house repeat the
SEC's "more than 200 cases" claim again with no attribution. The "Analysis"
piece also repeats Frankel's contention, backed in her case by several
corporate defense lawyer sources, that sub-certifications or "waterfall" certification
insulates the C-suite from claims of criminal responsibility for false
certification. Basically, if several underlings tell the CFO and CEO the
numbers are good, disclosures are good, controls are good, then how can they,
high level, insulated executives, know better? Certainly C-level executives
never change or adjust numbers after they flow up.
That contention is disingenuous or just plain naïve.
Read this article in its entirety at the re: The Auditors, a blog
by Francine McKenna.
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