The Sarbanes‐Oxley Act of 2002 effects sweeping changes to the US federal securities laws

Abstract

Signed into law by President Bush on July 30, 2002, the Sarbanes‐Oxley Act of 2002 (the Act) presents what may be among the most sweeping set of changes to U.S. federal securities laws since the New Deal. Designed to address widespread outrage and waning investor confidence resulting from a series of financial meltdowns, earnings restatements, and other corporate and accounting abuses, the Act is in many ways unprecedented. For example, in addition to regulating disclosure and securities trading, the traditional jurisdiction of U.S. federal securities laws, the Act also addresses matters of substantive corporate governance and executive fiduciary responsibility, such as loans to officers and directors, management oversight, director due diligence, and executive compensation, as well as professional responsibilities of external auditors and attorneys, areas traditionally left to the states and self regulatory organizations (SROs) such as the NYSE, AMEX, and NASDAQ. The Act is complex, with over 70 sections, and will present numerous challenges to corporate executives, financial officers, and professional service providers. What’s more, given the pace with which the Act was pushed through the conference committee process and adopted by Congress, various inconsistencies and ambiguities already have emerged and will continue to do so. The Act certainly will receive the prompt attention of the Securities and Exchange Commission (SEC) as it promulgates the many regulations required to implement the Act’s broad‐based mandate. This article presents a number of key aspects of the Act that we believe are of most immediate concern to corporate executives and directors of corporations and financial institutions.