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Sarbanes Oxley

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Background

Sarbanes Oxley SarbsOx ( Mis Spellings include, Sarbaynes, Oaxley, Oxly )

In 2002 the Sarbanes-Oxley Act of 2002 became law. This increases penalties and duties of different office holders as well as Analysts and Investment professionals. This law applies to public companies that file a form 10-K with the Securities and Exchange Commission, their auditors and securities analyists. This means it can also apply to non US companies.

The law changes the financial system in the following ways,

Penalties

Penalties for violations of to up to $25 million dollars and up to 20 years in prison.

Public Company Accounting Oversight Board

Congress established a five member Public Company Accounting Oversight Board to:

1.		Oversee public companies audit
2.		Create audit report standards and rules
3.		Enforce compliance
4.		Auditing rules have changed to include, Audit work papers kept for 7 years, Second partner review and approval, Evaluation of whether internal control structure and procedures include records that accurately reflect transactions and disposition of assets, Senior management and directors revew receipts.
5.		The Board to can discipline or issue remedial sanctions upon firms and their associates for negligent conduct.

Auditor Independence

Auditors cannot provide consultancy servies eg if Delloites or PWC were the appointed auditors they could not provide financial consultancy such as risk management or Acturial work using such systems as Prophet or Moses.

Partners cannot Audit for more than 5 years.

Requires that auditors report to the audit committee:

Corporate Responsibility

The firm cannot exert illegal or improper influence upon an audit for the purpose of making financial statements misleading. The CEO and CFO must forfeit certain bonuses and compensation received if the company is required to make an accounting restatement due to the material non compliance of an issuer. (bonuses and compensation one year from the original issuance or filing that needed restating )

No trading of public company's stock during pension fund blackout periods.

Prohibits Enron type personal loans by a corporation to its executives and directors.

Senior personnel must disclose changes in securities ownership within two business days.

Analyst Conflicts of Interest

Investment bankers cannot pre approve research reports.

Ensures research analysts are not supervised by persons involved in investment banking .

Prevents retaliation against analysts by employers in return for writing negative reports like what happended in CSFB with one unlucky Analyst.

Disclosure if compensation was received by the analyst, or broker or dealer, from the company that was the subject of the appearance or report.

Did the analyst received compensation with respect to a research report, based upon banking revenues of the registered broker or dealer.

Commission Resources and Authority

$98 million is included to hire more then 200 additional qualified professionals to provide improved oversight of auditors and audit services.

SEC can now consider orders of state securities commissions when deciding whether to limit the activities , functions, or operations of brokers or dealers.

Studies and Reports

Sets up various reports and studies including,

The role of credit rating agencies in the securities markets

The number of securities professionals practicing before the Commission who have aided an abetted Federal securities violations but have not been penalized as a primary violator

SEC enforcement actions taken regarding violations of reporting requirements and restatements of financial statements

GAO report on whether investment banks and financial advisors assisted public companies in earnings manipulation and obfuscation of financial conditions.

Corporate and Criminal Fraud Accountability

Penalties for destroying, altering, concealing, or falsifying records with intent to obstruct or influence either a Federal investigation or a matter in bankruptcy and for failure of an auditor to maintain for a five year period all audit or review work papers pertaining to an issuer of securities (ten years in prison)

Makes non-dischargeable in bankruptcy certain debts incurred in violation of securities fraud laws.

Extends the statute of limitations to permit a private right of action for a securities fraud violation to not later then two years after its discovery or five years after the date of the violation.

Provides whistleblower protection to prohibit a publicly traded company from retaliating against an employee because of any lawful act by the employee to assist in an investigation of fraud or other conduct by Federal regulators, Congress or supervisors, or to file or participate in a proceeding relating to fraud against shareholders.

Subjects to fine or imprisonment (up to 25 years) any person who knowingly defrauds shareholders of publicly traded companies.

White Collar Crime Penalty Enhancements

Increases penalties for mail and wire fraud from five to twenty years in prison.

Increases penalties for violations of the Employee Retirement Income Security Act of 1974 (up to $500,000 and 10 years in prison).br>
Establishes criminal liability for failure of corporate officers to certify financial reports, including maximum imprisonment of ten years for knowing that the periodic report does not comply with the act or for twenty years for willfully certifying a statement knowing it does not comply with this act.

Title X: Corporate Tax Returns.

Expresses the sense of the Senate that the Federal income tax return of a corporation should be signed by its chief executive officer.

Corporate Fraud Accountability

Amends Federal criminal law to establish a maximum 20 year prison term for tampering with a record or otherwise impeding an official proceeding.

Authorizes the SEC to seek a temporary injunction to freeze extraordinary payments earmarked for designated persons or corporate staff under investigation for possible violations of Federal securities law.

Authorizes the SEC to prohibit a violator of rules governing manipulative, deceptive devices, and fraudulent interstate transactions, from serving as officer or director of a publicly traded corporation if the persons conduct demonstrates unfitness to serve.

For all Securities & Exchange Commission (SEC) registered organisations - whether subsidiaries of US domestic registrants or foreign private investors - that need to comply with the requirements of section 404 of the Sarbanes-Oxley Act.

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