Which SOX Safeguard?

The Sarbanes-Oxley Act (SOX) became law in 2002, after a run of companies cooked their books and left investors with nothing. It applies to publicly traded companies that report to the US Securities and Exchange Commission (SEC), including foreign companies whose shares trade on US exchanges. Corporate responsibility: the chief executive and chief financial officers certify each quarterly and annual report. They state they have reviewed it, that it contains no untrue statements, and that it fairly presents the company's finances, so they answer for it personally. Criminal penalties: SOX added and raised prison terms. Securities fraud can bring up to 25 years, destroying or altering records to obstruct a federal investigation up to 20, and mail and wire fraud went from 5 years to 20. Willfully certifying a false report is a crime too. Audits and internal controls: management keeps controls over financial reporting, such as second approvals and controlled access to the accounting system. At larger public companies an outside auditor reports on those controls. The auditor has to stay independent: it may not also sell the company services such as bookkeeping, and the lead audit partner rotates off after five years. Whistleblower protection: a company may not fire, demote or harass an employee for reporting fraud to a supervisor or the authorities, or for testifying about it. An employee who suffers for it can seek reinstatement and back pay. SOX also expanded financial disclosure, such as off-balance-sheet arrangements, and made insiders report their trades within two business days. It did not create the ban on insider trading, as the video says: trading on inside information was already illegal under earlier securities law.