Yesterday was the 10th anniversary of the passage of the Sarbanes-Oxley Act. JW Verret had some timely thoughts, which I share:
There are many days that I wish Larry Ribstein were still here, and today is definitely one of those days. He would have had a lot to say about the tenth anniversary of SOX today. He and Henry Butler noted in their book “The Sarbanes-Oxley Debacle: What We’ve Learned; How to Fix It” that:
“while the direct costs are substantial, they are only the tip of the iceberg….An important aspect of SOX’s indirect costs is the Act’s impact on litigation. SOX gives litigators the benefit of 20/20 hindsight to identify minor or technical reporting mistakes as the basis for lawsuits against corporations, officers, and directors. While the first major market correction will be painful for investors, SOX will surely turn it into a festival for trial lawyers. Litigation on this scale should not be confused with shareholder protection. SOX has created a ticking litigation time bomb.”
Kevin Lacroix discusses a 2011 study from Cornerstone Research that demonstrated just how prescient Larry and Henry were on this aspect of SOX. This study shows how cases involving accounting allegations are increasingly common in nearly all of the years after SOX, that cases involving internal control weakness allegations are much more likely to settle, and that cases involving accounting allegations dominate settlements as they make up 70-90% of total settlement dollars. So it turns out, as Larry and Henry predicted, SOX has become quite the precocious child at tens-years old (which corresponds, I am told, with fourth grade). ...
I miss Larry too, precisely because he was very nearly unrivaled in his ability to get to the heart of the problems with laws like SOX.
In any case, if you are one of those who still struggle daily with SOX's complexities, may I suggest my book Complete Guide to Sarbanes-Oxley
