The Sarbanes-Oxley Act of 2002 (SOX) is a securities law that Congress passed in response to the high profile Enron and Worldcom financial scandals. It was implemented to protect stockholders and the general public from accounting errors and fraudulent practices in the financial world. The Sarbanes-Oxley Act is not a set a business practices, but rather rules dictating how and when financial records must be kept, as well as regulations on the professional behavior of executives and upper management. This law is enforced by the Securities and Exchange Commission (SEC). Punishments for non-compliance include heavy fines, imprisonment, or both.

What Is Required By the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act requires businesses to:

  • Certify financial reports by chief executive officers (CEOs) and chief financial officers (CFOs)
  • Ban personal loans to any executive officers and directors
  • Accelerate reporting on securities trades by insiders and people with secret knowledge
  • Ban insider trades during pension fund blackout periods
  • Make a public disclosure of CEO and CFO compensation and profits
  • Keep business records, including electronic records and electronic messages, for at least five years
  • Demand auditor independence
  • Ban auditors working on any non-audit materials and pre-certifying any audits
  • Show annual independent audit reports on the reliability of how financial records are made and maintained

Can a Lawyer Help Me With the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act is the most significant change to federal securities laws since the 1930s, and it includes very harsh penalties for non-compliance. Some of the rules under the act may require large modifications within your company, or even a complete overhaul of how your financial records are kept and maintained. A securities lawyer can explain the Sarbanes-Oxley Act to you, and help ensure that your company is in compliance with it.