Board (“Board”), to stop fraudulent auditing.59 The SEC appoints all five
members of this Board. 60 SOX covers restrictions on Auditors, Audit
Committee, Disclosure Requirements, and Criminal Penalties and creates
stricter rules for Officers and Directors. 61 Under SOX, the Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”) of an organization are
required to certify the accuracy of certain financial reports and are held
personally liable for this certification. 62 In addition, SOX increased fines and
lengthened jail sentences for federal financial crimes. 63
There are many parallels that can be drawn between the two securities acts
of the 1930s and SOX. 64 Markedly, there were similar market conditions in
the decade prior to passage; the stock market was performing dreadfully; and
the political environment was also comparable. 65 The securities laws,
combined with amendments to the Federal Sentencing Guidelines and SOX,
create a much more regulated business environment than existed prior to the
stock market crash of 1929. Nevertheless, some changes were much needed
and truly positive; other regulatory changes may have negative impacts on
the business landscape today.
III. APPLICABLE LAWS
Before delving into the specific laws violated in the cases below, it is
important to understand how corporate officers and directors became
personally liable for actions of their companies. The responsible-corporate-
officer doctrine creates liability for a corporate officer for a violation of law
solely “by reason of his [or her] position in the corporation, responsibility
and authority either to prevent in the first instance, or promptly to correct.” 66
There is no requirement under the doctrine that the officer or director be
aware of the violation in order to be held liable. 67 There are two landmark
60. About the PCAOB, PCAOB, https://pcaobus.org/About (last visited Sept. 17, 2017).
It should be noted that the original Board nominations in 2002 backfired because the
candidates themselves were involved in unethical businesses. Bumgardner, supra note 58.
This embarrassed the SEC and created a rough start for the newly-appointed Board. Id.
61. Bumgardner, supra note 58.
65. Id. Though there are comparisons to the securities legislation of the 1930s and the
financial legislation of the 2000s, business ethics today has a much stronger push than when
the SEC was originally created.
66. U.S. v. Park, 421 U.S. 658, 673–74 (1975).