Friday, March 23, 2007

Blame It on Sarbanes-Oxley

David Stockman went on the offensive regarding his possible (even likely) indictment on charges related to his tenure as CEO of auto parts supplier Collins & Aikman.  A story in the Wall Street Journal (here) quotes Stockman as asserting that any case against him would be a "crimeless prosecution" -- a phrase I've never heard before, and perhaps he meant a "baseless" prosecution.  He further argued that filing charges for his public statements to analysts and investors is a sign that the Sarbanes-Oxley Act has led to  "flyspecking of every word in a CEO's earnings call in the midst of an auto industry meltdown where every investor knew there was high risk."  It's not clear how Stockman reaches that conclusion, at least if one looks at the terms of the statute that deals more with internal controls and corporate governance than proscribing CEO comments.  It's likely that any securities related charges will involve the anti-fraud and books and records provisions, which long pre-date the passage of Sarbanes-Oxley.  There is a small possibility that Stockman could be charged with violating the CEO certification provision that is part of the act, but that statute (18 U.S.C. Sec. 1350) is among the least controversial provisions of Sarbanes-Oxley.  Once again, perhaps in the heat of the interview Stockman meant to bemoan the atmosphere that engendered the act and led to the recent corporate executive prosecutions assailed by some as the "criminalization of agency costs."  Regardless of what he meant, it's clear that Stockman shows no interest in negotiating a resolution of the case, which means we will probably see yet another high-profile CEO in court facing criminal charges. (ph)

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