Congress enacted the Sarbanes-Oxley Act in 2002 in response to major corporate and accounting scandals, most notably those involving Enron, Tyco International, Adelphia, and WorldCom. The act created the Public Company Accounting Oversight Board, which oversees, inspects, and regulates accounting firms in their capacity as auditors of public companies. As a result of the act, the SEC may include civil penalties to a disgorgement fund for the benefit of victims of the violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.
KEY TAKEAWAYAWAY
Corrupt practices, misuse of corporate funds, and insider trading unfairly benefit the minority and cost the public billions. Numerous federal laws have been enacted to create liability for these bad actors in order to prevent fraudulent trading activities. Both civil and criminal penalties are available to punish those actors who bribe officials or use inside information unlawfully.
EXERCISES
- Why is the SEC so concerned with bribery? What does the SEC really aim to prevent through the FCPA?
- What are short-swing profits?
- To whom does Section 16(b) apply?
- Explain how Rule 10b-5 has been amended “on the basis of” insider information.
- Can a secondary actor (attorney, accountant) be liable for insider trading? What factors must be present?
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