A SOX provision that could blindside your company

A little-known provision criminalizes the anticipatory obstruction of justice

The 2001 collapse of the energy giant Enron Corp. and the subsequent downfall of its accounting firm, Arthur Andersen, sent shockwaves through corporate America. Not only did the infamous scandal involve the largest bankruptcy in history at the time, but it also centered on a massive audit failure and the destruction of documents in an attempt to cover up corporate transgressions.

As a response to Enron and other corporate and accounting scandals, Congress created the now well-known Sarbanes-Oxley Act (SOX), which seeks to prevent future similar egregious misconduct and increases the penalties against companies and auditors that try to defraud shareholders or federal investigators.

Overlooked and Ominous

Despite Section 1519’s immense power, Funk says prosecutors have largely overlooked the provision. As a result, most in-house lawyers are unaware of its danger.

Staying Safe

Experts say lawyers must stay abreast of Section 1519 cases as they make their way through the courts. In addition, in-house lawyers should review their companies’ document policies.

Ashley Post

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