Unflexed Muscle: SEC Enforcement and Officer SOX 302 Certifications

Abstract

This article represents the first work to analyze the Securities and Exchange Commission’s neglect in its enforcement of the chief executive officer (CEO) and chief financial officer (CFO) Sarbanes-Oxley certification requirement. The article addresses the appropriate construction of the statute’s reach, the enforcement proceedings instituted by the SEC under this provision, and the Commission’s failure to fulfill its legislative directive to enforce this statute and Rule 13a-14 promulgated thereunder. In its implementation of the CEO and CFO certification requirement, the SEC has brought relatively few enforcement actions during over a two-decade period. Its enforcement with respect to CEOs and CFOs of S&P 500 companies is nearly nonexistent. Indeed, the SOX certification requirement, as implemented by Rule 13a-14, has become a supplement or add-on claim in SEC enforcement actions. Thus, the Commission’s failure to adequately enforce this mandate suggests a regulator that refrains from pursuing CEOs and CFOs of publicly-held companies for their misconduct, and particularly so with respect to CEOs and CFOs of S&P 500 companies. The article supports these assertions by means of thorough empirical data that provides ample support for the findings reached. 

Keywords: Sarbanes-Oxley Act of 2002, Section 302, Compliance, Executives, SOX certification, Corrupt practices, Fraud, Corporations, Regulation, Corporate governance, Corporation law, Securities law, United States, Securities and Exchange Commission

JEL Classification: G34, K22