Sox Effect On Ceos And Cfos Essay

1043 Words Nov 12th, 2014 5 Pages
SOX Effect on CEOs and CFOs
In response to the market crash of 1929 and the subsequent Great Depression, the Securities Act of 1933 was enacted with the purpose regulating the offer and sale of securities (SEC, n.d.). The Securities and Exchange Commission (known hereafter as the SEC) was then created from The Securities Exchange Act of 1934 and given the responsibility of overseeing the securities industry and regulating conduct in various exchanges (SEC, n.d.). Under these Acts, firms were held accountable for informing investors of information necessary for the purchase of securities. These acts did have repercussions for firms that did not adhere to the regulations outlined by the SEC, but these held maximum penalties of $1 million in fines and up to 10 years in prison (Chang, Choy, & Wan, 2002, p. 180). The Sarbanes-Oxley Act (SOX) was enacted in 2002 after a slue of financial fraud cases, such as Enron and WorldCom, emerged. Under SOX, penalties for misstatement of information is serious than prior acts with maximum fines of $5 million and 20 years imprisonment for those employees who are charged with misleading or hiding evidence (Gleason, Madura, & Rosenthal, 2011, p. 25)
In addition to fines and imprisonment, Section 304 of SOX mandates that CEOs and CFOs forfeit any incentive pay – which includes bonuses and stock options – if they are charged of financial misrepresentation (Chang et al., 2002, p. 180). This forfeiture is triggered when a firm is required to…

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