Overview

Markets should pick winners and losers—cheaters shouldn't be able to game the system. Consumers and investors as well as employees and taxpayers need tough laws and tough rules to guarantee that their investments are protected.

In 2002, Congress passed the Sarbanes-Oxley Corporate Reform Act in response to numerous accounting scandals and earnings restatements epitomized by the collapse of both Enron and Worldcom. These scandals caused billions of dollars in investor and retiree losses and shook investor confidence world-wide. The law addressed conflicts of interest where supposedly independent accountants, whom the Supreme Court calls “the public’s watchdogs,” instead look the other way while corporate executives cook the books.

The law, in Section 404, also requires corporate management at the CEO level to certify annually to investors that their financial books are clean of manipulation. In response, the business-backed U.S. Chamber of Commerce has launched a campaign to roll back Section 404. The SEC advisory committee has recommended that the smallest 80 percent of publicly traded companies not be required to give investors the same CEO certifications as larger companies. In a letter from PIRG, the Consumer Federation of America and others, we argued that the advisory committee’s recommendations:

are in direct conflict with the law, would undermine investor confidence, and do not fulfill the Committee's original charge to "conduct its work with a view to protecting investors." Instead, we urge you to disband the advisory group and to start fresh in your search for ways to minimize the cost of regulatory requirements for smaller public companies while retaining their important investor protections.

Several bills have been introduced in Congress that would also roll back Section 404 of the Sarbanes-Oxley Act. We are monitoring them closely.