Criminal Liability Under the Sarbanes Oxley Act - Explained
What is Criminal Liability under the Sarbanes-Oxley Act?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act (SOX) is a set of federal laws addressing criminal and unethical conduct of public company boards and management. It also addresses the accounting and auditing practices of firms servicing these public companies.
Next Article: What is Cyber Crime? Back to: CRIMINAL LAW
What are the criminal provisions under the Sarbanes-Oxley Act?
The criminal sanctions under the Sarbanes-Oxley Act (SOX) Act are as follows:
- Title VIII & XI - This portion of SOX contains the "Corporate and Criminal Fraud Accountability Act of 2002". It provides criminal charges for the creation or destruction of fraudulent corporate records. It generally addresses fraud through the use of corporate records and provides established ranges of criminal penalties. It also establishes protections against retaliation for those reporting such activity.
- Title IX - This portion of SOX is called the "White Collar Crime Penalty Enhancement Act of 2002. It provides criminal charges for illegal and unethical conduct by officers and managers that harms the public. It specifically requires corporate managers to certify that records are true and accurate.
SOX was passed in the wake of numerous corporate scandals that rocked the financial markets, such as World Com, TyCo, Enron & Arthur Andersen.
Do you think that additional government regulation of corporate practices in the form of criminal penalties helps to curve unethical conduct? Do any positive effects outweigh the negative consequences to the business (such as increased costs, bureaucracy, etc.)?
- Many would argue that government regulations hinder business and are ineffective in curbing criminal conduct by corporations. The hindrance of business regards increased costs, bureaucracy, uncertain standards, etc. Others would argue that these regulations are absolutely necessary and, without them, corporations have free range to undertake questionable activities without oversight. One thing is certain. It is extremely difficult to enforce statutes and regulations against corporations and the decision-makers (executives and board members).
Derek is CFO of ABC, Inc. After years of declining profits, Derek devises a method for improving the appearance of ABCs balance sheet. Derek creates a group of limited liability companies that are owned by ABC. ABC transfers corporate debt to these entities, which is reported off of the main balance sheet and in the footnotes of the financial statements. Derek knows that this form of disclosure is likely to convince investors that ABC has a strong financial position. Has Derek committed a crime?
- Derek could be charged with crimes under the Sarbanes-Oxley Act since he has given false information, a false balance sheet, and records to attract investors. The Sarbanes-Oxley Act protects investors from fraudulent financial reporting by corporations. Section 302 of the Act mandates that senior corporate officers personally certify in writing that the company's financial statements comply with SEC disclosure requirements and fairly present in all material aspects the operations and financial condition of the issuer. Section 404 of the SOX Act of 2002 requires that management and auditors establish internal controls and reporting methods to ensure the adequacy of those controls. Section 802 of the Act contains the three rules that affect recordkeeping; 1. Destruction and falsification of records, 2. The retention period for storing record, 3. Specific business records that companies need to store, which includes electronic communications. Generally, the Act prohibits corporates from misrepresenting information about the corporation. https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
- Criminal Law (Intro)
- What is Criminal Law?
- What are the elements of a crime?
- Classifications of crimes Misdemeanor vs Felony Criminal Charges?
- What is the process for executing an arrest?
- What are the exceptions to reading Miranda Rights?
- What is the Arraignment and Initial Appearance
- Investigation - Subpoena
- Types of Punishment for Criminal Activity
- Theories Behind Criminal Punishment
- Federal Sentencing Guidelines
- What are the 4th Amendment protections against Search and Seizure?
- What are the 5th Amendment criminal law protections?
- What are the 6th Amendment criminal law protections?
- What are the 8th Amendment criminal law protections?
- Crimes Against the Property of Others
- Activity Constituting Fraud
- Good Faith as a Defense to Fraud
- Common Types of Business Fraud
- False Statement as a Criminal Charge
- Conspiracy as a Criminal Charge
- Obstruction of Justice as a Criminal Charge
- Aiding and Abetting or Conspiracy to a Crime