Historical Summary of Sarbanes-Oxley Act

As a result of corporate scandals like Enron, WorldCom, Adelphia, and Tyco, Congress succumbed to public pressure for our government to do something about the unethical behavior of corporate executives of publicly-traded companies. Hence, the Sarbanes-Oxley Act of 2002 was enacted. The goal of Sarbanes-Oxley (SOX) was to restore integrity and public confidence in financial markets. At the heart of some of these scandals was a flagrant disregard of Generally Accepted Accounting Practices (GAAP). For example, WorldCom improperly accounted for $3.8 billion in expenses to cover up a net loss for 2001 and the first quarter of 2002 (Washington Post, 2005). Also according to the New York Times, Enron overstated its profit by $ 586 million (Jelveh & Russell, 2006). These overstatements of revenue deceived investors and when the financial statements were restated, the stock values of these companies plummeted. When the companies went bankrupt, investors lost millions. In the case of Enron, some employees lost their life savings. The auditing firm for Enron, Arthur Andersen also went bankrupt. According to Forbes, Anderson was accused of shredding documents after the SEC launched an inquiry into Enron. Andersen was convicted of obstruction of justice and was ordered to cease auditing public firms (Patsuris, 2002).

Other scandals like Tyco came about as a result of the unethical and immoral behavior of its corporate executives. Tyco CEO Dennis Kozlowski and Tyco CFO Mark Swartz were found guilty of stealing more than $150 million from Tyco (USA Today, 2005). The Forbes Corporate Scandal Sheet says that the Rigas family was accused of collecting $3.1 billion in off-balance-sheet loans backed by Adelphia. Adelphia had overstated results by inflating capital expenses and hiding debt (Patsuris, 2002).). As the Wall Street Journal stated:

            A federal-court jury convicted 79-year-old John Rigas, Adelphia’s

founder and former CEO, of fraud and conspiracy for looting the company

of more than $100 million, hiding more than $2 billion in debt the family

incurred, and lying to the public about Adelphia’s operations and financial

condition. His son Timothy, the former chief financial officer, was convicted

of the same charges (Grant & Nuzum, 2004).


The media exploded with similar stories of corporate abuses of power. The Sarbanes-Oxley Act was introduced by Senator Paul Sarbanes, a Democrat from Maryland and Congressman Michael Oxley, a Republican from Ohio. President George W. Bush signed the bill into law on July 30, 2002.

Grant, P. & Nuzem, C. (2004). Wall Street Journal. Retrieved from


Patsuris, P. (2002). Forbes Corporate Scandal Sheet. Retrieved from


Jelveh & Russell, (2006). Retrieved from http://www.nytimes.com/ref/business/20060201_ENRON_GRAPHIC.html
Timeline of the Tyco international scandal. (2008). USA TODAY, a division of Gannet Co, Inc. Retrieved from http://usatoday30.usatoday.com/money/industries/manufacturing/2005-06- 17-tyco-timeline_x.htm


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