Opinion ID: 62908
Heading Depth: 2
Heading Rank: 5

Heading: Sarbanes-Oxley Act Certifications

Text: Almost as an afterthought, plaintiffs allege that the Sarbanes-Oxley certifications signed by Bernhard and Belk, which attest to the accuracy of Shaw's SEC filings, contribute to a strong inference of scienter. Under the Sarbanes-Oxley Act, senior executives of public companies must certify the accuracy of quarterly and annual financial reports. See 15 U.S.C. § 7241(a). The report must identify the officer's basis for making the certification and each officer must certify that he and other officers are responsible for establishing and maintaining internal controls. 15 U.S.C. § 7241(a)(4)(A). Moreover, the officers must certify that they have evaluated the effectiveness of the issuer's internal controls within the previous ninety days and have presented in the report their conclusions about the effectiveness of their internal controls. 15 U.S.C. § 7241(a)(4)(C), (D). Bernhard and Belk both signed Sarbanes-Oxley certifications from 2002 on, as certifications were attached to the quarterly and annual reports. According to plaintiffs, the certifications were false because the defendants knew that Shaw's internal accounting controls were defective and its financial statements misleading. In Garfield v. NDC Health Corp., 466 F.3d 1255, 1266 (11th Cir.2006); the court concluded that a Sarbanes-Oxley certification, standing alone, is not indicative of scienter. This court has cited the Garfield analysis approvingly. Central Laborers, 497 F.3d at 555. To hold otherwise, the Eleventh Circuit reasoned, would mean that scienter would be established in every case where there was an accounting error or auditing mistake made by a publicly traded company, thereby eviscerating the pleading requirements for scienter set forth in the PSLRA. Garfield, 466 F.3d at 1266. Instead, the court held that a Sarbanes-Oxley certification is only probative of scienter if the person signing the certification was severely reckless in certifying the accuracy of the financial statements. Id. There must be, in other words, facts establishing that the officer who signed the certification had a reason to know, or should have suspected, due to the presence of glaring accounting irregularities or other `red flags,' that the financial statements contained material misstatements or omissions. Id. From the foregoing analysis of all of plaintiffs' allegations, no such facts placed Bernhard or Belk on notice of glaring irregularities or red flags.