The changes that encouraged the creation of Sarbanes-Oxley were so sweeping that comedian Jon Stewart quipped, “Did Wall Street have any rules before this? Can you just shoot a guy for looking at you wrong?” Despite the considerable merits of Sarbanes-Oxley, no legislation can provide a cure-all for corporate scandal (Table 10.6 “Sarbanes-Oxley Act of 2002 (SOX)”). As evidence, the scandal by Bernard Madoff that broke in 2008 represented the largest investor fraud ever committed by an individual. But in contrast to some previous scandals that resulted in relatively minor punishments for their perpetrators, Madoff was sentenced to 150 years in prison.
Table 10.6 Sarbanes-Oxley Act of 2002 (SOX) In the early 2000s, highly publicized fraud at Enron, WorldCom, Tyco, and other firms revealed significant
issues including conflicts of interest by auditors and securities analysts, boardroom failures, and inadequate funding of the Securities and Exchange Commission. In response, Senator Paul Sarbanes and Representative Michael Oxley sponsored legislation that contained what former President George. W. Bush called “the most far- reaching reforms of American business practices since the time of Franklin D. Roosevelt.” We outline the eleven key aspects of the law below.
325 Mastering Strategic Management
Accounting firms were complicit in some fraudulent events. In response, SOX created a board to oversee auditing activities within these firms.
To restore investor confidence in securities analysts, SOX expands the SEC’s authority to censure or bar them from acting as a broker, advisor, or dealer.