The Bright Coast

Progressive Thoughts from San Diego Alums on Law, Politics, and Culture

That Horrible Sarbanes-Oxley

Posted by brightcoast on October 1, 2008

I thought I’d start a separate post to respond to the call to repeal Sarbanes-Oxley because of its “unnecessary” costs to business. Below is only a tiny portion of perhaps the most “un”important parts, especially as related to us future lawyers:

Under section 7245 Rule of Professional responsibility for attorneys

The SEC  “shall issue rules, in the public interest and for the protection of investors, setting forth the minimum standards of professional conduct for attorneys appearing and practicing before the Commission in any way in the representation of issuers, including a rule—

(1) requiring an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or agent thereof,…”

Because I mean what do we need to protect investors or the public interest for right? And who cares if businesses violate the law, that’s what golden parachutes are all about right? And who cares if all businesses end up like Enron and literally bankrupt Americans’ pensions, etc. ? The invisible hand will save us all right?

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7 Responses to “That Horrible Sarbanes-Oxley”

  1. Ken Wilson said

    SOX was unnecessary for several reasons…
    1.) Stock Exchanges had already enacted most of the requirements as a prerequisite for trading on their exchanges.
    2.) The SEC had full authority to change and enforce accounting standards.
    3.)The DOJ had full authority to prosecute firms, companies and executives for fraud and securities related crimes.
    4.) Under SOA (Sarbanes-Oxley Act of 2002), auditing firms are chosen by the companies whom they are to audit, creatiing a conflict of interest.
    5.)The Public Company Accounting Oversight Board (PCAOB) is unconstitutional because it is a monopoly that has both taxation and regulation power.

    It is Harmful to America because:
    1.) SOA greatly increases the risks of becoming a board member of a publicly traded company.
    2.) The ban on loans to corporate officers takes away one of the most efficient ways of executive compensation.
    3.)Raises liability insurance costs for corporate officers and executives.
    4.) Raises costs of doing business as a public company and raises the incentive to stay private.

    It is ineffective because it missed the point. It failed to actually address the underlying major problems of accounting, auditing, taxation, and corporate governance that have invited corporate malfeasance and increased the probability of bankruptcy.

    Section 404 of SOA have been very costly to implement, large incentives to avoid the act by delisting or refusing to list in the first place are an effect, there was no extra authority added that did not already exist, it has the potential for great harm and does not address the root problem. It seems like a no brainer: repeal SOA to help the American economoy grow.

  2. brightcoast said

    If it was so unneccessary, then how do you explain Enron, Worldcom, et al.?

  3. Ken Wilson said

    A failure of the DOJ and SEC to properly enforce accounting standards. The solution, enforce standards already in place, not enact new ones.

    Your argument is flawed as well, “There are laws on the books against theft, why does theft still occur? We need new laws against theft.” That line of reasoning is not the way it works in real life. There will always be people who think they can get away with breaking the law.

  4. Ghostride tha Whip said

    Dear Mr. Wilson,

    Bob, John, and Phil decide to open up a lemonade stand. The three agree to equally share all the proceeds earned from the stand, after reinvesting for the purpose of sustaining their supply of lemons needed to make their product. In order to raise additional capital (to buy more lemons to grow their stand into a cart), Bob asks Mary and Tina to each invest $1. In exchange for their investment, they are each provided with a purple balloon. Tina gets her money back (by redeeming her beautiful purple balloon) because her cousin Betty opened a lemonade stand and is offering investors 3 giant cookies in exchange for a $1 investment. Betty has procedures in place that allow investors to enjoy, hypothetically, a 30% likelihood that the cookies will taste good. However, Bob, John, and Phil assure investors that they are simply the best juicers out there, but promise nothing more than a purple balloon to anyone that invests a $1 (but it’s an amazing balloon). Moreover, the three lemon crushing savants have an occasional puff of the “wacky weed” and engage in random encounters with high-profile escorts (no worries though, they write-off these expenses). In sum, where would you rather buy your lemonade from? Would you rather be a Tina or a Mary? Do you like purple balloons?

    “put your stunna shades on”

  5. brightcoast said

    The failure of the DOJ? Which part exactly? Please, share your knowledge of how the government could have known what was going on pre-SOX, I am intrigued.

  6. Ken Wilson said

    To Brightcoast:
    The SEC failed through faulty review of audit documents. The DOJ failed, not through fault of their own, but by extension of the SEC’s failure. While no agency is omnipotent, SEC filings were clear and eventually used to convict Enron’s execs.

    Can any part of government “know” a crime is being committed before or during the act? No, ours is a reactive system. Something happens then we react.

    To Ghostride tha Whip:
    Your post is hard to understand, but if I read it correctly…
    The three juicers would quickly go out of business if they were truly not delivering a fine product or delivering on the promises to their shareholders. If the cookie seller expects to sell a product with a 30% likelihood of satisfaction she better be selling for rock-bottom prices. So I would be the investor who decided to refrain from investing my dollar… unless the purple balloon was really sweet.

    (And as an aside to Brightcoast, I will compose my posts in Word and properly edit prior to my posting from this post on.)

  7. Bob the Builder said

    Just for shiggles, please reread the post about the lemonade stand and only answer the specific call of the questions. Both businesses sell lemonade.

    “Can we build it? YES WE CAN!”

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