Friday, August 22, 2008

DC Appeals Court upholds Sarbanes-Oxley

A federal appeals court (a three-judge panel in the District of Columbia) has upheld the Sarbanes-Oxley Act, particularly a controversial provision that appoints a non-profit “Public Company Accounting Oversight Board” (link) under the Securities and Exchange Commission. The act was controversial because of “separation of powers” concerns. The long name of the Act is the Public Company Reform and Investor Protection Act of 2002, and the acronyms are “SOX” (like the Chicago White Sox uniforms!) and “Sarbox.” The text of the Act from the US Government Printing Office is here.

The Opinion from the DC Circuit is available at this URL. The formal name of the case is “Free Enterprise Fund and Beckstead and Watts, LLP v. Public Company Accounting Oversight Board, et al

The Washington Post story on Aug. 22 is by David S. Hilzenrath, and has this URL.

The law was passed in large measure because of the "good old boy" schmoozy networks between companies and "big 8" auditors, that expressed ethical conflicts of interest, and that encouraged hiding of abusive accounting practices ("cooking the books") that led to the collapse of Enron and then WorldComm in 2001 and 2002.

In practice, SOX is controversial because it supposedly limits the ability of certain kinds of financial services professionals and agents to earn income outside of their jobs, especially when they receive “training bonuses” from their companies. I was told this by New York Life in 2005, and supposedly the company checked this provision with its compliance office. The concern seems to relate to the possibility that someone could try to function simultaneously both as an “agent” and a “broker”.

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