A decade of SOX

A timeline of the most important events related to SOX

2001

  • Sept. 9 – “Something is rotten with the state of Enron,” writes the New York Times of a 62 percent fall in value of Enron Corp. shares since January. “Or so Wall Street suspects.”
  • Oct. 16 – Enron says that, due to accounting violations, it will restate financial statements for 1997 through 2000.
  • Dec. 2 – Enron files for Chapter 11 protection in what is then the largest bankruptcy in U.S. history.
  • Dec. 12 – The House Committee on Financial Services holds a hearing on the Enron collapse, becoming the first of many Congressional committees to address it.

2002

  • Jan. 23 – Kenneth Lay resigns as Enron Chairman and CEO.
  • Feb. 1 – A special investigative committee of the Enron board of directors releases its Powers Report, which clears the board and places much of the blame on CFO Andrew Fastow, COO Jeffrey Skilling and financial executive Michael Kopper, who in August will strike a deal with the government, cooperating with investigators, pleading guilty to DOJ charges and settling a Securities and Exchange Commission (SEC) complaint.
  • Feb. 4 – Lay resigns from the Enron board. He will die in 2006 awaiting sentencing for securities fraud and related charges. Conspiracy theories will abound.
  • Feb. 13 – The SEC calls on major stock exchanges to review their governance requirements. By the end of the year both the NYSE and Nasdaq will approve and submit to the SEC new governance proposals addressing many of the same issues as Sarbanes-Oxley (SOX).
  • Feb. 14 – Rep. Michael Oxley, R-Ohio, introduces the House version of what will be SOX, the Corporate and Auditing Accountability, Responsibility and Transparency Act (H.R. 3763).
  • March 31 – The Public Oversight Board, the private self-regulatory body of the accounting industry, is formally dissolved. It will be replaced by the independent Public Company Accounting Oversight Board (PCAOB) upon enactment of SOX.
  • April 24 – The House passes H.R. 3763 by a vote of 334-90.
  • June 15 – Arthur Andersen, Enron’s accounting firm, is found guilty of obstruction of justice for instructing employees to destroy documents related to its audit of Enron. In 2005, the Supreme Court will overturn the conviction due to flawed jury instructions—but it will be too late for any meaningful revival of the firm.
  • June 25 –WorldCom Inc. says it overstated earnings for the past five quarters by more than $3.8 billion, a fraud uncovered by internal auditors carrying out a secretive investigation. A special investigative committee of the WorldCom board will later find that the company inflated its assets by around $11 billion.
  • June 25 – The same day, Sen. Paul Sarbanes, D-Md., introduces the Senate version of SOX, the Public Accounting Reform and Investor Protection Act (S. 2673).
  • July 15 – The Senate passes Sarbanes’ bill 97-0.
  • July 21 – WorldCom files for Chapter 11 protection, exceeding Enron’s as the largest such filing in history. (It will lose the title in 2008.)
  • July 24 – A conference committee working to reconcile the House and Senate bills approves a final bill, The Sarbanes-Oxley Act of 2002, which both houses vote through unchanged the next day.
  • July 30 – President Bush signs SOX into law.
  • Aug. 31 – On the heels of its conviction, Arthur Andersen surrenders its CPA license.
  • Oct. 25 – Founding board members of the PCAOB are appointed to staggered terms.

2003

  • May 27 – The SEC adopts final rules implementing Section 404 of SOX—the most controversial and most expensive provision of the bill. But the Commission extends deadlines over its requirements. It will continue to extend deadlines for certain filers into 2010.
  • Nov. 4 – The Department of Justice (DOJ) brings criminal charges against former HealthSouth Corp. CEO Richard Scrushy. Included are three violations of SOX 906, making him the first CEO charged under SOX. Scrushy will go on to challenge the constitutionality of SOX’s certification provisions and fail. In 2005, after a five-month trial, a jury will clear him of all charges. But he will not see similar success in separate criminal and civil cases.

2004

  • Jan. 28 – David Welch, former CFO of Cardinal Bankshares Corp., becomes the first employee to win whistleblower protections under SOX following an OSHA administrative law judge ruling. In 2007, the Arbitration Review Board (ARB) will reverse the decision, and a federal appeals court will later affirm the ARB.

2006

  • Oct. 20 – The SEC announces it will begin distributing money from a Fair Fund to wronged WorldCom investors, in what’s seen as a test case for SEC Fair Funds. Under SOX, the Commission has the authority to distribute to investors the entire $750 million that it collected from WorldCom.

2007

  • May – Senate passes the Dodd-Shelby amendment to the American Competes Act, giving the SEC and PCAOB more time to implement Section 404 so they can address cost burdens on small and mid-size public companies. Later that year, the SEC will issue interpretive guidance and the PCAOB will adopt Accounting Standard 5, both aimed at easing Section 404 requirements for smaller SEC-reporting companies.   

2008

  • Aug. 22 – The D.C. Circuit upholds the PCAOB as constitutional following a 2006 challenge by the Free Enterprise Fund and a small accounting firm, Beckstead and Watts.
  • Dec. 11 – After Section 304, the SOX clawback provision, is invoked in a shareholder derivative action, the 9th Circuit rules there is no private right of action for Section 304. Other circuits will follow.

2009

  • July 22 – SEC tests the limits of Section 304, the clawback provision, filing suit against an executive accused of no securities law violations—CSK Auto Corp.’s former CEO Maynard Jenkins.

2010

  • June 28 – The Supreme Court rejects the Free Enterprise Fund challenge to SOX, but says the SEC must be given the power to remove PCAOB members in order to respect the separation of powers.
  • July 21 – The Dodd-Frank Wall Street Reform and Consumer Protection Act is signed into law by President Obama.
  • Sept. 15 – Implementing a provision of Dodd-Frank, the SEC adopts a final rule exempting small public companies from Section 404 requirements.
  • Sept. 30 – The 2nd Circuit rejects a settlement in a shareholder derivative suit because it “impermissibly” releases and indemnifies officers against all liability under Section 304 of Sarbanes-Oxley.

2011

  • May 3 – in Tides v. The Boeing Co., the 9th Circuit says SOX’s whistleblower protections don’t cover employee statements to the media.
  • Aug. 30 – SEC settles with former Beazer Homes USA CFO James O’Leary. Although he is not personally charged with misconduct, O’Leary agrees to return $1.4 million to the company under the clawback provision.
  • Nov. 16 – Former CSK Auto CEO Jenkins settles with the SEC, agreeing to return $2.8 million in compensation and stock profits to the company.

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