Author: LegalEase Solutions
Introduction
The attached table below contains a list of the amendments made by the Sarbanes Oxley Act, 2002 to the Securities Act, 1933 (15 USC § 77a et seq.) and the Securities Exchange Act, 1934 (15 USC § 78a et seq.). Most of the amendments relate to auditing and audit services, its terms of compliance etc. The provision which seems to be most relevant to the complaint are those dealing with accuracy and certification of financial statements. The Act has also prescribed or added to criminal sanctions for knowingly including false information or failing to properly certify financial statements.
Discussion
- Accuracy of Financial Reports
Sec. 401(a) which deals with the accuracy of financial reports. To the extent that Newmont gave erroneous and false information to investors about its ownership interests in the mines, Section 401(a) may bolster the allegations contained in the complaint.
Section 401(a) reads in part:
(i) Accuracy of Financial Reports.–Each financial report that contains financial statements, and that is required to be prepared in accordance with (or reconciled to) generally accepted accounting principles under this title and filed with the Commission shall reflect all material correcting adjustments that have been identified by a registered public accounting firm in accordance with generally accepted accounting principles and the rules and regulations of the Commission.
Section 906 of the Act also prescribes criminal sanctions against corporations found to fail to certify or certify statements containing financial reports. Section 906 reads:
Sec. 906. CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) In General.–Chapter 63 of title 18, United States Code, is amended by inserting after section 1349, as created by this Act, the following:
“Sec. 1350. Failure of corporate officers to certify financial reports
(a) Certification of Periodic Financial Reports.–Each periodic report containing financial statements filed by an issuer with the Securities Exchange Commission pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) shall be accompanied by a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the issuer.
“(b) Content.–The statement required under subsection (a) shall certify that the periodic report containing the financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act pf 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.
“(c) Criminal Penalties.–Whoever–
“(1) certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than $ 1,000,000 or imprisoned not more than 10 years, or both; or
“(2) willfully certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than $ 5,000,000, or imprisoned not more than 20 years, or both.”.
(b) Clerical Amendment.–The table of sections at the beginning of chapter 63 of title 18, United States Code, is amended by adding at the end the following:
“1350. Failure of corporate officers to certify financial reports.”
The Sarbanes Oxley Act also includes a provision for corporate responsibility. The Act imposes corporate responsibility for financial reports by requiring the chief executive officer (CEO) and chief financial officer (CFO) to certify reports submitted to the Securities and Exchange Commission (SEC). § 302. The officer has the responsibility of certify the reports filed before the commission. Section 302 of the Act reads in part:
Sec. 302. <15 USC 7241> CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS.
(a) Regulations Required.–The Commission shall, by rule, require, for each company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)), that the principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted under either such section of such Act that–
(1) the signing officer has reviewed the report;
(2) based on the officer’s knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;
(3) based on such officer’s knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report;
(4) the signing officers–
(A) are responsible for establishing and maintaining internal controls;
(B) have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;
(C) have evaluated the effectiveness of the issuer’s internal controls as of a date within 90 days prior to the report; and
(D) have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;
(5) the signing officers have disclosed to the issuer’s auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function)–
(A) all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls; and
(B) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls; and
(6) the signing officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
- Criminal Sanctions for failure to certify reports or certify false reports
The Act directs the SEC to issue penalties against any person associated with the company who attempts to improperly influence the conduct of audits. § 303. As alleged in the complaint due to their false and misleading statements, the Company has artificially driven up its stock price. The audit function of the company may have been improperly influenced to show incorrect financial date. Hence this section may be applied to the complaint. It reads as follows:
Sec. 303. <15 USC 7242> IMPROPER INFLUENCE ON CONDUCT OF AUDITS.
(a) Rules To Prohibit.–It shall be unlawful, in contravention of such rules or regulations as the Commission shall prescribe as necessary and appropriate in the public interest or for the protection of investors, for any officer or director of an issuer, or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the performance of an audit of the financial statements of that issuer for the purpose of rendering such financial statements materially misleading.
(b) Enforcement.–In any civil proceeding, the Commission shall have exclusive authority to enforce this section and any rule or regulation issued under this section.
(c) No Preemption of Other Law.–The provisions of subsection (a) shall be in addition to, and shall not supersede or preempt, any other provision of law or any rule or regulation issued thereunder.
(d) Deadline for Rulemaking.–The Commission shall–
(1) propose the rules or regulations required by this section, not later than 90 days after the date of enactment of this Act; and
(2) issue final rules or regulations required by this section, not later than 270 days after that date of enactment.
Various sections of the Sarbanes Oxley Act provide for new or heightened criminal sanctions against those convicted of defrauding shareholders Section 807 of the Sarbanes Oxley Act prescribes heightened penalties for defrauding shareholders of publicly traded companies and failing to certify financial reports or submitting falsified financial reports
Section 807 reads:
Sec. 807. CRIMINAL PENALTIES FOR DEFRAUDING SHAREHOLDERS OF PUBLICLY TRADED COMPANIES.
(a) In General.–Chapter 63 of title 18, United States Code, is amended by adding at the end the following:
“Sec. 1348. Securities fraud
“Whoever knowingly executes, or attempts to execute, a scheme or artifice–
“(1) to defraud any person in connection with any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)); or
“(2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l) or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d));
shall be fined under this title, or imprisoned not more than 25 years, or both.
Section 905 reads:
Sec. 905. <28 USC 994 note> AMENDMENT TO SENTENCING GUIDELINES RELATING TO CERTAIN WHITE-COLLAR OFFENSES.
(a) Directive to the United States Sentencing Commission.–Pursuant to its authority under section 994(p) of title 18, United States Code, and in accordance with this section, the United States Sentencing Commission shall review and, as appropriate, amend the Federal Sentencing Guidelines and related policy statements to implement the provisions of this Act.
(b) Requirements.–In carrying out this section, the Sentencing Commission shall–
(1) ensure that the sentencing guidelines and policy statements reflect the serious nature of the offenses and the penalties set forth in this Act, the growing incidence of serious fraud offenses which are identified above, and the need to modify the sentencing guidelines and policy statements to deter, prevent, and punish such offenses;
(2) consider the extent to which the guidelines and policy statements adequately address whether the guideline offense levels and enhancements for violations of the sections amended by this Act are sufficient to deter and punish such offenses, and specifically, are adequate in view of the statutory increases in penalties contained in this Act;
(3) assure reasonable consistency with other relevant directives and sentencing guidelines;
(4) account for any additional aggravating or mitigating circumstances that might justify exceptions to the generally applicable sentencing ranges;
(5) make any necessary conforming changes to the sentencing guidelines; and
(6) assure that the guidelines adequately meet the purposes of sentencing, as set forth in section 3553(a)(2) of title 18, United States Code.
(c) Emergency Authority and Deadline for Commission Action.–The United States Sentencing Commission is requested to promulgate the guidelines or amendments provided for under this section as soon as practicable, and in any event not later than 180 days after the date of enactment of this Act, in accordance with the procedures set forth in section 219(a) of the Sentencing Reform Act of 1987, as though the authority under that Act had not expired.
The following are the additions to the Securities Act of 1933 (15 USC § 77a et seq.)
Section | Description | Sarbanes Oxley | ||
Sec. 8A(f) (15 U.S.C. 77h-1) | Officer and director bars “(f) Authority of the Commission to Prohibit Persons From Serving as Officers or Directors.–In any cease-and-desist proceeding under subsection (a), the Commission may issue an order to prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who has violated section 17(a)(1) or the rules or regulations thereunder, from acting as an officer or director of any issuer that has a class of securities registered pursuant to section 12 of the Securities Exchange Act of 1934, or that is required to file reports pursuant to section 15(d) of that Act, if the conduct of that person demonstrates unfitness to serve as an officer or director of any such issuer.”. | Sec. 1105(b) | ||
Sec. 19(b) (15 U.S.C. 77s) | Recognition of Accounting standards established by the standard setting body Not applicable | Sec. 108(a) | ||
Sec. 20(g) (15 U.S.C. 77t) | Authority of a Court To Prohibit Persons From Participating in an Offering of Penny Stock (Penny stock bars) | Sec. 603(b) | ||
Sec. 20(d)(3)(A) (15 U.S.C. 77t(d)(3)(A)). | Conforming amendment- NA | Sec. 308(d)(3) | ||
Sec. 20(e) (15 U.S.C. 77t(e)) | Officer and director bars- Securities act of 1933.– Section 20(e) of the Securities Act of 1933 (15 U.S.C. 77t(e)) is amended by striking “substantial unfitness” and inserting “unfitness | Sec. 305(a)(2) | ||
The following are the additions to the Securities Exchange Act of 1934 (15 USC § 78a et seq.)
Section | Description | Sarbanes Oxley | ||
Sec. 3(a)(58) (15 U.S.C. 78c(a) | Definition of Audit committee Not applicable | Sec. 205(a) | ||
Sec. 3(a)(59) (15 U.S.C. 78c(a)) | Definition of Registered public accounting firm | Sec. 205(a) | ||
Sec. 4C 15 USC 78d-3 | Appearance and Practice before the SEC- The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege of appearing or practicing before the Commission in any way, if that person is found by the Commission, after notice and opportunity for hearing in the matter……………………………. | Sec. 602 | ||
Sec. 10A(g) (15 U.S.C. 78j-1) | Prohibition on non-audit services by a registered public accounting firm and any associated person of that firm to provide to the issuer, contemporaneously with the audit, any non-audit service, including book keeping…………………. | Sec. 201(a) | ||
Sec. 10A(h) (15 U.S.C. 78j-1) | Pre-approval of non-audit services | Sec. 201(a) | ||
Sec. 10A(i) (15 U.S.C. 78j-1) | Pre-approval requirements– All auditing services (which may entail providing comfort letters in connection with securities underwritings or statutory audits required for insurance companies for purposes of State law) and non-audit services, other than as provided in subparagraph (B), provided to an issuer by the auditor of the issuer shall be preapproved by the audit committee of the issuer……………………………….. | Sec. 202 | ||
Sec. 10A(j) (15 U.S.C. 78j-1) | Audit partner rotation- It shall be unlawful for a registered public accounting firm to provide audit services to an issuer if the lead (or coordinating) audit partner (having primary responsibility for the audit), or the audit partner responsible for reviewing the audit, has performed audit services for that issuer in each of the 5 previous fiscal years of that issuer | Sec. 203 | ||
Sec. 10A(k) (15 U.S.C. 78j-1) | Reports to audit committees– Each registered public accounting firm that performs for any issuer any audit required by this title shall timely report to the audit committee of the issuer……………………….. | Sec. 204 | ||
Sec. 10A(l) | Conflicts of interest– It shall be unlawful for a registered public accounting firm to perform for an issuer any audit service required by this title, if a chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for the issuer, was employed by that registered independent public accounting firm and participated in any capacity in the audit of that issuer during the 1-year period preceding the date of the initiation of the audit | Sec. 206 | ||
Sec. 10A(m) (15 U.S.C. 78j-1) | Audit committee standards– Standards relating to audit committees | Sec. 301 | ||
Sec. 13(i) (15 USCS § 78m) | Accuracy of financial reports– Accuracy of financial reports. Each financial report that contains financial statements, and that is required to be prepared in accordance with (or reconciled to) generally accepted accounting principles under this title and filed with the Commission shall reflect all material correcting adjustments that have been identified by a registered public accounting firm in accordance with generally accepted accounting principles and the rules and regulations of the Commission. | Sec. 401(a) | ||
Sec. 13(j) (15 USCS § 78m) | Off-balance sheet transactions– Off-balance sheet transactions. Not later than 180 days after the date of enactment of the Sarbanes-Oxley Act of 2002 [enacted July 30, 2002], the Commission shall issue final rules providing that each annual and quarterly financial report required to be filed with the Commission shall disclose all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the issuer with unconsolidated entities or other persons, that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses | Sec. 401(a) | ||
Sec. 13(k) (15 USCS § 78m) | Prohibition on loans to executives | Sec. 402 | ||
Sec. 13(l) (15 USCS § 78m) | Real time disclosures– Each issuer reporting under section 13(a) or 15(d) [15 USCS § 78m(a) or 78o(d)] shall disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer, in plain English, which may include trend and qualitative information and graphic presentations, as the Commission determines, by rule, is necessary or useful for the protection of investors and in the public interest. | Sec. 409 | ||
Sec. 15(b)(4)(H) (15 U.S.C. 78o) | Broker and dealers | Sec. 604(a) | ||
Sec. 15D 15 USC 78o-6
| Securities analysts and research reports | Sec. 501(a) | ||
Sec. 21(d)(5) (15 U.S.C. 78u(d)) is | Equitable relief- In any action or proceeding brought or instituted by the Commission under any provision of the securities laws, the Commission may seek, and any Federal court may grant, any equitable relief that may be appropriate or necessary for the benefit of investors | Sec. 305(b) | ||
Sec. 21(d)(6) (15 U.S.C. 78u(d)), | Penny stock bars– Authority of a court to prohibit persons from participating in an offering of penny stock | Sec. 603(a) | ||
Sec. 21C(c)(3) (15 U.S.C. 78u-3(c)) | Temporary freeze of assets– Issuance of temporary order.–Whenever, during the course of a lawful investigation involving possible violations of the Federal securities laws by an issuer of publicly traded securities or any of its directors, officers, partners, controlling persons, agents, or employees, it shall appear to the Commission that it is likely that the issuer will make extraordinary payments (whether compensation or otherwise) to any of the foregoing persons, the Commission may petition a Federal district court for a temporary order requiring the issuer to escrow, subject to court supervision, those payments in an interest-bearing account for 45 days…………………. | Sec. 1103(a) | ||
Sec. 21C(f) (15 U.S.C. 78u-3) | Officer and director bars- Authority of the Commission to Prohibit Persons From Serving as Officers or Directors.–In any cease-and-desist proceeding under subsection (a), the Commission may issue an order to prohibit, conditionally or unconditionally, and permanently or for such period of time as it shall determine, any person who has violated section 10(b) or the rules or regulations thereunder, from acting as an officer or director of any issuer that has a class of securities registered pursuant to section 12, or that is required to file reports pursuant to section 15(d), if the conduct of that person demonstrates unfitness to serve as an officer or director of any such issuer.”. | Sec. 1105(a) | ||
Sec. 3(a)(39)(F) (15 U.S.C. 78c(a)(39)(F))– | Conforming amendment | Sec. 604(c)(1)(A) | ||
Sec. 3(a)(47) (15 U.S.C. 78c(a)(47)) | Conforming amendment | Sec. 2(b) | ||
Sec. 10A (15 U.S.C. 78j-1) | Conforming amendments | Sec. 205(b) | ||
Sec. 10A(f) 15 USC 78j-1 | Conforming amendment | Sec. 205(d) | ||
Sec. 12(b)(1) (15 U.S.C. 78l(b)(1)), | Conforming amendment | Sec. 205(c)(1) | ||
Sec. 12(i) (15 U.S.C. 78l(i)) | Conforming amendment | Sec. 3(b)(4) | ||
Sec. 13(b)(2) (15 U.S.C. 78m(b)(2)) | Conforming amendment | Sec. 109(h) | ||
Sec. 15(b)(4)(F) (15 U.S.C. 78o) | Brokers and dealers | Sec. 604(a)(1) | ||
Sec.15(b)(6)(A)(i), Sec. 15B(c)(2), Sec. 15B(c)(4), Sec. 15C(c)(1)(A), Sec. 15C(c)(1)(C) (15 U.S.C. 78o(b)(6)(A)(i)), (15 U.S.C. 78o-4(c)), (15 U.S.C. 78o-5(c)(1)) | Conforming amendment | Sec. 604(c)(1)(B) | ||
Sec. 16(a) (15 U.S.C. 78p) | Insider disclosures– DISCLOSURES OF TRANSACTIONS INVOLVING MANAGEMENT AND PRINCIPAL STOCKHOLDERS-
“Sec. 16. DIRECTORS, OFFICERS, AND PRINCIPAL STOCKHOLDERS. | Sec.403(a) | ||
Sec. 17(e), Sec. 17(i), (15 U.S.C. 78q) | Conforming amendment | Sec. 205(c)(2) | ||
Sec 17A(c)(3)(A), Sec 17A(c)(4)(C), (15 U.S.C. 78q-1(c))– | Conforming amendment | Sec. 604(c)(1)(C) | ||
Sec. 21(a)(1) (15 U.S.C. 78u) | Conforming amendment | Sec. 3(b)(2)(A) | ||
Sec. 21(d)(1) (15 U.S.C. 78u) | Conforming amendment | Sec. 3(b)(2)(B) | ||
Sec. 21(d)(2) (15 U.S.C. 78u(d)(2)) | Officer and director bars- Section 21(d)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(2)) is amended by striking “substantial unfitness” and inserting “unfitness”. | Sec. 305(a)(1) | ||
Sec. 21(d)(3)(C)(i) (15 U.S.C. 78u(d)(3)(C)(i)). | Conforming amendment | Sec. 308(d)(1) | ||
Sec. 21(e) (15 U.S.C. 78u) | Conforming amendment | Sec. 3(b)(2)(C) | ||
Sec. 21(f) (15 U.S.C. 78u) | Conforming amendment | Sec. 3(b)(2)(D) | ||
Sec. 21A(d)(1) (15 U.S.C. 78u-1(d)(1)). | Conforming amendment | Sec. 308(d)(2) | ||
Sec. 21B(a) (15 U.S.C. 78u-2(a)) | Conforming amendment | Sec. 501(b) | ||
Sec. 21C(c)(2) (15 U.S.C. 78u-3(c)(2)) | Conforming amendment | Sec. 3(b)(3) | ||
Sec. 21C(c)(2) (15 U.S.C. 78u-3(c)(2)) | Technical amendment- | Sec. 1103(b) | ||
Sec. 32(a) (15 U.S.C. 78ff(a)) | Increased criminal penalties- Section 32(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78ff(a)) is amended– | Sec. 1106 | ||
Sec. 35 (15 U.S.C. 78kk) | SEC appropriations- “Sec. 35. AUTHORIZATION OF APPROPRIATIONS. “In addition to any other funds authorized to be appropriated to the Commission, there are authorized to be appropriated to carry out the functions, powers, and duties of the Commission, $ 776,000,000 for fiscal year 2003, of which–……………………… | Sec. 601 |