What Is The Sarbanes-Oxley Act?
The Sarbanes-Oxley Act was introduced in 2002. Although named for its co-sponsors Senator Paul Sarbanes and Representative Michael Oxley, the Act is officially titled The Public Company Accounting Reform and Investor Protection Act. In Beaumont, Texas, the Act has become a touchstone for commercial litigation attorneys — particularly those who represent clients fighting to expose financial impropriety or those who represent clients accused of such wrongdoing.
Why was the Act introduced?
Sarbanes-Oxley was inspired by a number of corporate scandals, including those at Enron, Arthur Andersen, Tyco, Global Crossing and WorldCom. The fall of Enron (a Houston-based company) in 2001 is a paradigm for all the rest. It was certainly a, if not the, precipitant for the Sarbanes-Oxley Act.
Thought to be the largest and perhaps most stable company in the United States, Enron did everything and did it well. It sold futures in gas and oil, built refineries and power plants and grew into the world’s largest paper, gas, electricity and communications company in the world — before it tanked. Enron misstated its earnings, and shareholders and employees were drawn in. Employees were encouraged to buy company stock, but while earnings reports looked favorable, they were inaccurate. To add insult to injury, Enron officials were embezzling money from the company even as they reported false earnings to investors. Ultimately, the company once thought to be invincible went bankrupt, and its employees lost their retirement portfolios.
What does the Act do?
Under the Act, all financial reports must include information that demonstrates internal controls are in place. The Act created the Public Company Accounting Oversight Board, a nonprofit organization, to ensure financial statements are audited in accordance with independent standards. Sarbanes-Oxley makes chief executives and chief financial officers responsible for the precision of the financial statements. Penalties ranging to $5 million in fines and 20 years in jail may be imposed upon violators. The Act consists of 11 sections dealing with myriad issues of corporate governance, transparency and propriety, including:
- Public company accounting rules
- The independence of auditors
- Corporate responsibility
- Financial disclosure
- Analyst independence
- Corporate and criminal fraud
- Protecting whistleblowers
What to do if you are affected by Sarbanes-Oxley
If you are an employee and you worry about what to do with information about a company, or executive within the company, that you believe is in violation of Sarbanes-Oxley, you need to be aware of your rights and protections before proceeding with whistleblowing. Seek the counsel of Beaumont commercial attorneys who can provide formidable representation.
The Bernsen Law Firm has more than 52 years of combined experience serving the communities of South Texas. Contact us to discuss your concerns.