SOX Compliance: Title X and Title XI - CEO tax return sign-off and corporate fraud accountability

Title X - Section 1001: Sense of the senate regarding the signing of corporate tax returns by chief executive officers

The United States Senate believes that the chief executive officer (CEO) of a corporation should sign the corporation's federal income tax return.

Title XI: Corporate fraud and accountability

The title XI of Sarbanes-Oxley (SOX) act enhances measures to combat corporate fraud. It introduces severe penalties for tampering with records and obstructing official proceedings, authorizing fines and imprisonment of up to 20 years. The section is empowered to freeze payments during investigations, and the U.S. Sentencing Commission is tasked with revising guidelines to reflect the gravity of securities fraud, particularly by corporate officers.

The section now also bars individuals found unfit from serving as officers or directors of public companies. Penalties under the Securities Exchange Act are increased significantly, with fines for individuals rising to $5 million and imprisonment to 20 years. Additionally, new protections against retaliation for whistleblowers are established, penalizing harmful actions against informants with fines or up to 10 years in prison.

Section 1101: Short title

This title may be cited as the ‘‘Corporate Fraud Accountability Act of 2002’’.

Section 1102: Tampering with a record or otherwise impeding an official proceeding

• Section 1102 of SOX amends Section 1512 of Title 18, U.S. Code, to include severe penalties for tampering with records or obstructing official proceedings.
• It introduces a new subsection (c), which imposes fines or imprisonment of up to 20 years for anyone who corruptly alters, destroys, mutilates, conceals records or objects, or otherwise impedes any official proceeding or attempts to do so.

Section 1103: Temporary freeze authority for the Securities and Exchange Commission

• Section 1103 of SOX grants the SEC temporary freeze authority.
• It amends the Securities Exchange Act of 1934 to authorize the SEC, during investigations of possible securities law violations, to request a federal court to freeze extraordinary payments from an issuer to its key personnel temporarily.
• This freeze, placed in an interest-bearing escrow account, can last up to 45 days, extendable by another 45 days for good cause.
• If violations are charged within this period, the freeze remains until legal proceedings conclude. If no violations are charged, the escrowed funds are returned.

Section 1104: Amendment to the federal sentencing guidelines

• Section 1104 of SOX mandates the U.S. Sentencing Commission to promptly review and amend the sentencing guidelines for securities and accounting fraud.
• The Commission is asked to enhance penalties for corporate officers and directors involved in such fraud, ensure the guidelines reflect the seriousness of these crimes, and consider any aggravating or mitigating factors.
• They are also to ensure consistency with other guidelines, particularly for obstruction of justice.
• The Commission must complete this review and submit recommendations to Congress within 180 days of the Act's enactment, treating it as an emergency authority request.

Section 1105: Authority of the Commission to prohibit persons from serving as officers or directors

• Section 1105 of SOX grants the SEC the authority to prohibit individuals from serving as officers or directors of public companies.
• This power applies to individuals involved in cease-and-desist proceedings who have violated key sections of the Securities Exchange Act of 1934 or the Securities Act of 1933.
• The SEC can issue such prohibitions either conditionally or unconditionally, permanently or for a specified period, if the individual’s conduct demonstrates unfitness to serve in these roles.

Section 1106: Increased criminal penalties under Securities Exchange Act of 1934

• Section 1106 of SOX amends Section 32(a) of the Securities Exchange Act of 1934 to increase the penalties for violations.
• The maximum individual fine is raised from $1 million to $5 million, and the maximum prison term is extended from 10 to 20 years.
• For entities, the maximum fine is increased from $2.5 million to $25 million.

Section 1107: Retaliation against informants

• Section 1107 of SOX amends Section 1513 of title 18, U.S. Code, to include new penalties for retaliation against informants.
• It specifies that anyone who knowingly retaliates against someone for providing truthful information about a federal offense to law enforcement will face fines, up to 10 years in prison, or both.