Question: Anyone know why Sarbanes–Oxley wasn't used to put the bankers in jail?

[IdaBriggs]

Just listened to a lecture at work yesterday talking about how "Sarbanes–Oxley" is a big deal because it means executives who misrepresent financials can now go to jail.

Very confused as to why it wasn't applied to the bankers?

Serious question. And if the answer is "because the Executive Branch wasn't doing its job" I will accept that, but I am curious if there was a loophole somewhere...?

http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act

The Sarbanes–Oxley Act of 2002 (Pub.L. 107–204, 116 Stat. 745, enacted July 30, 2002), also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability and Responsibility Act" (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law that set new or enhanced standards for all U.S. public company boards, management and public accounting firms.

The bill, which contains eleven sections, was enacted as a reaction to a number of major corporate and accounting scandals, including Enron, and Worldcom. The sections of the bill cover responsibilities of a public corporation's board of directors, adds criminal penalties for certain misconduct, and required the Securities and Exchange Commission to create regulations to define how public corporations are to comply with the law.

[Man from Pickens]

1. Because banks are top campaign donors

it really is that simple, sadly.

[el_bryanto]

2. Most banks complied with it

But it didn't actually address a lot of the real issues plaguing the derivatives market. The problem with financial regulation is 2 fold - the people enforcing it are usually on the same page as the people stretching the boundaries, and financial regulation is usually written to address the last major issue, not the next one.

Bryant

[alc]

3. I have some experience

The law should say "If your company does X you go jail." instead of "If you company does X and you knew about it and you signed a report saying you didn't know about it you go to jail".

I spent 3 years at a fortune 100 company in position where I helped collect the reporting required by sox. Every quarter there were 70+ people responsible for delivering a sox report for their area which were combined into the report to the execs. Almost 300 reports per year and an exec can plausibly argue that he/she couldn't possible know if every detail of every report was accurate and had to trust the people under him/her.

The execs are required to sign-off on the reports and are legally liable if the reports were wrong AND they know they are wrong (e.g. they go to jail if they knowingly sign-off on a false sox report). The problem for prosecutors is that the reports give the execs an out. The prosecutor doesn't need to prove that "the company did X". The prosecutor needs to prove that "a) the company did X. b) someone (like me) delivered a falsified report to the execs saying we didn't do X. c) the exec knew it was falsified but signed it"

Execs do not know every detail of the business. They set high level directions and get down to the details in a few areas they care about. It's very easy to set a high level direction that can be done legally or illegally then stay out of specifics. Even if they give an unwritten/unrecorded/undocumented indication to the managers that they should go the illegal route, the exec is hard to prosecute.

* They are never involved with the illegal activity.
* There is a he-said/she-said question between the manager and the exec on whether the exec knew (assuming the manager agrees to testify).
* The exec has lots of reporting (from someone like me) saying that nothing illegal was being done.
* The exec has better lawyers than the prosecutor or the manager or me

There's a lot more to it but the law gives execs more cover than threat of prosecution. I never saw anything illegal at my company but the more I learned about sox the more I saw how a company that wanted to do illegal things could get away with it and could picture exactly who/what/when my company would act to avoid sox prosecution - If I could see it, I'm sure corporate lawyers could if they wanted to get around the law.

[IdaBriggs]

4. That makes sense. So the Enron folk and the first ones charged

were really only prosecuted because they didn't do the wink-wink-nudge-nudge stuff correctly?

Thank you for sharing your experience - this helps.