SARBANES-OXLEY

In 2002, Congress passed a law known as the Sarbanes-Oxley Act, or SOX.  SOX applies to both publicly- and privately-held companies, and imposes a rigid list of corporate best practices in an effort to deter acts of fraud. Companies who violate these standards risk exposure to a long list of civil and criminal penalties, as well as investment and loan denials.  In short, failure to adhere to the provisions supplied by SOX presents allegedly non-compliant corporations with a battery of devastating legal and financial problems.

Whether your business needs experienced legal representation to challenge claims of non-compliance, or you are simply unsure whether your current practices align with SOX best practices and would like a closer review of your policies, the knowledgeable employment attorneys of Bellatrix PC are here to help.  Our business risk review will identify and improve upon vulnerable areas in your employment and record-keeping policies to better protect you against legal claims in the future.  If your organization has already been targeted by a lawsuit, our aggressive commercial litigation lawyers will prepare tactical defense strategies to protect your company’s best interests.

To arrange for a private legal consultation, call Bellatrix PC right away at (800) 449-8992.

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What is Sarbanes-Oxley in Employment Law?

In response to the controversial and heavily publicized Enron and WorldCom bankruptcies, Congress passed the Sarbanes-Oxley Act into law in July of 2002.  This act, which was quickly nicknamed “SOX,” is also known as the Public Company Accounting Reform and Investor Protection Act, or the Corporate and Auditing Accountability and Responsibility Act.  These names provide a good idea of SOX’s general purpose.

The act has two primary objectives:

  • To deter and punish corporate fraud, accounting fraud, and acts of corruption among corporate executives.
  • To protect whistleblowers in whistleblower lawsuits, making the destruction of evidence and impeding federal civil investigations a crime.

It is crucially important for business owners to know that, contrary to common misconceptions, this act applies to privately held companies — not just publicly-traded companies.  This means private companies may not destroy evidence or interfere with federal civil investigations by agencies such as OSHA, the EEOC, or the IRS, which implicates employment law.  SOX also imposes specific restrictions on private placement securities solicitations, which is particularly important if you or your organization is raising capital from investors.  Private companies must demonstrate full compliance with SOX before going public.

Sarbanes-Oxley also establishes corporate “best practices,” which include:

  • Maintaining and archiving corporate records and email.
  • Maintaining audit-worthy financial records.
  • Maintaining legally sound corporate records.
  • Establishing business policies and codes of ethics.
  • Monitoring conflicts of interest.
  • Establishing independent directors on the Board of Directors where appropriate.

Civil and Criminal Penalties for Violating SOX Best Practices

It is critically important for employers and business owners to note that the best practices delineated by Sarbanes-Oxley are not merely recommendations.  On the contrary, failure to comply can result in a variety of debilitating civil and even criminal penalties being imposed on non-compliant companies.  For example, depending on the severity of the offense, a maximum prison sentence can range from 20 to 25 years: nearly three decades of incarceration.

It is also important to remember that, in addition to the formal civil and/or criminal penalties imposed by judges or regulatory agencies, organizations which fail to comply with SOX best practices are often highly unappealing to lenders, venture capitalists, and other investors.  If your company’s practices are deemed to be unethical, unsound, or otherwise fall short of the act’s requirements, the likely result is the denial of a loan or investment, or ongoing investor disputes.  In other words, the negative financial consequences of non-compliance extend far beyond fines and penalties imposed by the government: they extend to your business opportunities and daily operations as well.

Finally, because SOX provides whistleblower protection provisions, a whistleblower whose rights are violated may seek special damages, back pay, reinstatement, and attorneys’ fees.

Contact Our Business Attorneys

SOX convictions can devastate even the most stable and robust of corporations.  If you are at all concerned that your current employment or accounting practices are not in alignment with SOX provisions, it is absolutely crucial that you take immediate action to address the issue now before it is already too late. Failure to resolve legitimate concerns at the outset only increases the likelihood that costly, disruptive, and time-consuming litigation will arise in the future, draining your financial resources and damaging your organization’s reputation as a trustworthy and ethical business.

Let our team help yours.  To start discussing your organization’s legal situation in a completely private consultation, call the experienced Sarbanes-Oxley lawyers of Bellatrix PC at (800) 449-8992 today.