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Tip
Sheet: Business, Law & Economics Tip sheets highlight timely news and events at Washington University in St. Louis. For more information on any of the stories below or for assistance in arranging interviews, please see the contact information listed with each story. For comments on the Business, Law & Economics news tips service, please contact the editor, Robert Batterson at (314) 935-5202 or batterson@olin.wustl.edu. Legal scholar says Sarbanes-Oxley Act makes a significant contribution to federal criminal law Media assistance: Jessica Roberts - (314) 935-5251 Source: Kathleen Brickey - (314) 935-6417 Related: Kathleen Brickey's Web page
Brickey notes that the Sarbanes-Oxley Act "strengthens the legal protections accorded to whistleblowers and cooperating witnesses while enhancing the criminal penalties associated with corporate fraud." The Act protects whistleblowers and federal informants by filling a major loophole in the Victim and Witness Protection Act of 1982. "Instead of only protecting people against violent retaliatory acts, Sarbanes-Oxley prohibits harmful retaliatory acts that occur in the workplace environment. Thus, for example, firing or demoting a whistleblowing employee in retaliation for his cooperation in a federal investigation is a prohibited retaliatory act." The largest and most criticized change under Sarbanes-Oxley's criminal provisions are the new crimes and increased penalties that can be called for in accounting securities fraud cases. Under these provisions, prison terms and fines for accounting fraud are more than doubled, and the federal sentencing guidelines have been changed to increase mandatory prison terms for accounting and securities fraud. "Many critics of Sarbanes-Oxley see its reliance on increased penalties as perhaps the weakest link in the chain, reasoning that the threat of imprisonment has no deterrent value for corporate executives no matter what the maximum is," says Brickey. "Putting aside the question of whether it is impossible to deter greed, the unarticulated assumption is that the Act's higher penalties are only about deterrence. I'm not so sure that they are. Enron and WorldCom involve egregious frauds that are literally off the charts. In view of the magnitude of harm and the lack of justification for bringing it about, the architects of Sarbanes-Oxley might reasonably have concluded that higher authorized penalties are needed to reflect the gravity of high-end fraud. Retribution is, after all, a legitimate goal of criminal law." More importantly, these increased penalties provide strong incentives for potential targets of an investigation to cooperate with authorities in exchange for leniency. "Like whistleblowers, cooperating witnesses are an essential part of the investigations and prosecutions arising out of this wave of corporate scandals," Brickey adds. "One reason is the nature of the underlying crimes. To penetrate these complex schemes, investigators need the benefit of insiders' knowledge of the corporate chain of command, the intricacies of the organization's accounting system, and day-to-day interactions among key operatives." Brickey's full article on this subject will be in an upcoming issue of the Washington University Law Quarterly. This issue will contain a selection of articles from the recent F. Hodge O'Neal Corporate and Securities Law Symposium. |
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