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“CEOs and CFOs looked at Sarbanes-Oxley and said, ‘How can I possibly sign this without subcertifications?’” Former fraud prosecutor Joshua Hochberg, who is now a specialist in internal investigations at McKenna Long & Aldridge, said he often sees corporate minutes in which CEOs simply refuse to sign a certification unless lower-tier officials sign first. “It was a natural reaction,” said Hanusik. And when prosecutors have enough evidence to show that those internal systems failed and top executives knowingly engaged in wrongdoing, they prefer, for strategic reasons, to charge crimes other than false certification.Īfter Sarbanes-Oxley was passed, said former Enron prosecutor Thomas Hanusik, now a partner at Crowell & Moring, most large corporations put in place multiple layers of subcertification, requiring lower-level officials to attest to the accuracy of financial reports all the way up the chain to the CEO and CFO. Most major corporations have implemented internal compliance systems that make it very difficult to show that the CEO or CFO knowingly signed a false certification. The answer, according to five current and former federal prosecutors, lies partly in the specifics of the certification provisions and partly in how corporations have responded to Sarbanes-Oxley. Why aren’t SOX’s false certification provisions producing the sort of quick, easy cases that prosecutors like Seymour envisioned when the law was first passed? That makes the question of why, after a decade, Sarbanes-Oxley hasn’t been a boon to the prosecution of corporate crime all the more pressing. On 60 Minutes last December, correspondent Steve Kroft raised the prospect of using SOX to prosecute bank executives for their role in the mortgage crisis. There’s been renewed interest in Sarbanes-Oxley as a potential tool in investigations of Wal-Mart’s alleged Mexican bribery and JPMorgan’s risky credit default swap trading. Even four or five SOX criminal cases in 10 years, though, makes them as rare as a blue moon.
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(Tomasetta’s trial on other charges ended in a mistrial in April.) The Justice Department doesn’t directly track Sarbanes-Oxley prosecutions, so there may be another case here or there.
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In a more recent case, a SOX false certification charge against former Vitesse CEO Louis Tomasetta was dismissed. In 2007, the former CFO of a medical equipment financing company called DVI pleaded guilty to mail fraud and false certification and was sentenced to 30 months in prison. The most notorious SOX criminal case, against former HealthSouth CEO Richard Scrushy, ended in an acquittal in 2005. After accounting scandals at Enron, WorldCom and a host of other public companies, SOX’s certification provisions, according to Seymour and other former prosecutors, seemed like a clean, simple way to tie CEOs and CFOs to corporate crimes.īut in practice, exceedingly few defendants have even been charged with false certification, and fewer still have been convicted. The law states that if top corporate executives knowingly sign off on a false financial report, they’re subject to a prison term of up to 10 years and a fine of up to $1 million, with penalties escalating to 20 years and $5 million if their misconduct is willful. judge chides Cobell lawyers for trying to squelch appealĪs Sarbanes-Oxley marks its 10th anniversary on Monday, its promise of holding CEOs and CFOs criminally responsible remains unfulfilled.