Source: https://www.dallascriminallawyer.com/sarbanes-oxley/
Timestamp: 2019-10-23 16:22:17
Document Index: 219553091

Matched Legal Cases: ['§1350', '§7241', '§7241', '§13', '§15', '§302', '§ 807', '§ 1348', '§ 802', '§1519', '§ 802', '§1519', '§1107', '§1513', '§ 1001', '§1001', '§1621', '§1001']

Library of Motions - Sarbanes-Oxley | David Finn, P.C.
Library of Motions – Sarbanes-Oxley
The Top Five Areas of Potential Criminal
Exposure Under the Sarbanes-Oxley Act
When the Sarbanes -Oxley Act was passed in 2002, many people considered it a hurried reaction to corporate accounting scandals that had then repeatedly been front-page media stories. The act imposed significant new responsibilities on directors, officers and audit committees, along with potential criminal liability for violations of these new responsibilities.
This writing is intended to identify five areas of potential criminal exposure within the Sarbanes-Oxley Act, and not intended to fully discuss each area or offer solutions for each.
Although the U.S. Securities and Exchange Commission (“SEC”) may never seek criminal penalties during the course of an investigation, the SEC may refer the matter to the Department of Justice (“DOJ”) as a grand jury referral, which could be prosecuted by the U.S. Attorney’s Office.
Sections 906 and 302 of the Sarbanes-Oxley Act enacted twin provisions of the United States Code requiring certification by the CEOs and CFOs of corporate documents; these provisions are 18 U.S.C. §1350 and 15 U.S.C. §7241, respectively. Each section gives two levels of criminal penalties, depending upon whether the violation was knowing or willful.
Under 15 U.S.C. §7241, a “principal executive officer of officers and principal financial officer of officers ¼ or persons performing similar functions,” of a public company must certify each quarterly and annual report filed by the company under the new Exchange Act Rules §13(a) or §15(d). Furthermore, “a separate certification must be provided for each certifying officer, and the language of the certification cannot be varied from the language contained in” the statute. William D. Gould & Dale E. Short, The Sarbanes-Oxley Act of 2002 and its Aftermath.
Certification is made based on the knowledge of the certifying officer, and ignorance will not be a defense to a charge of falsely certifying a quarterly or annual report if the certifying officer should have known that the certification was false. Therefore, the implementation of §302 of the Sarbanes-Oxley Act “creates a heavy burden on the CEO and CFO to become personally aware of material information on a timely basis, and also makes it difficult to argue in any investigation that the CEO or CFO in fact had no knowledge of material information that was available.” Kirkland & Ellis LLP, How CEO’s, CFO’s Can Avoid Criminal Exposure Under Sarbanes-Oxley Certification Provisions.
It is important for certifying officers to document specific procedures required under the statute. It may be advisable to obtain written certification or representations from other officers and employees directly responsible for the information in the report.
Sarbanes-Oxley Act § 807, enhances criminal penalties for securities fraud under 18 U.S.C. § 1348
Two provisions of Sarbanes-Oxley were created to increase the government’s ability to convict individuals for altering documents – §§ 802 and 1102. 18 U.S.C. §1519, which is entitled “Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy” was created under § 802 of the Sarbanes-Oxley Act. 18 U.S.C. §1519 provides that:
The Sarbanes-Oxley Act prohibits companies from retaliating against employees who alert the government to possible SEC violations. In fact, §1107 of the Sarbanes-Oxley Act makes it a crime for anyone to knowingly, with intent to retaliate, take actions against any person including retaliation in connection with the person’s employment, in response to such person providing truthful information to law enforcement regarding a possible federal offense.
The punishment for retaliating includes a fine and imprisonment of not more than ten years pursuant to 18 U.S.C. §1513.
Although not specifically included in Sarbanes-Oxley, the obstruction of justice statute commonly used (or commonly threatened) is 18 U.S.C § 1001. This section has for many years been utilized to threaten prosecution if a person lies to a government official in any matter within the jurisdiction of the United States. Under 18 U.S.C. §1001, anyone who, “makes a materially false, fictitious or fraudulent statement or representation” can be fined and imprisoned for up to five years.
Also, if a witness testifies falsely under oath before the SEC staff or other government proceeding, he or she may be subject to a perjury conviction. 18 U.S.C. §1621.
Obstruction of justice, found under 18 U.S.C. §1001 and other provisions, is arguably easier to prove than some actual violations of the Sarbanes-Oxley Act. Obstruction of justice ranges from influencing a witness not to talk to law enforcement to destroying documents.
In conclusion, the Sarbanes-Oxley Act enhanced criminal prosecutions by focusing on false certifications of company statements, altering documents and potential obstruction of justice. Although publicly traded companies and their counsel must use caution regarding the process of document certification, and retention of certain documents, equally of concern is any statement made to an investigator or attorney for the government. A statement made about company procedures or actions, could potentially label the maker of the statement a subject of an investigation, especially if taken out of context or if made when a government agency already has heightened suspicions about a company’s activities. This evermore underscores the need for company officials and employees to retain counsel prior to meeting with government representatives.