SOX compliance: Title VI Commission resources and authority

Title VI of the Sarbanes-Oxley (SOX) act enhances SEC resources and authority by allocating $776 million for the 2003 fiscal year for salaries, IT, and additional staff. It empowers the SEC to censure or bar individuals lacking qualifications or integrity or violating securities laws, and grants courts authority to bar individuals from participating in penny stock offerings due to misconduct.

It also updates criteria disqualifying individuals from associating with brokers, dealers, or investment advisers, enhancing SEC enforcement and investor protection.

Section 601: Authorization of appropriations

• Section 601 of SOX authorized $776 million for the SEC for the 2003 fiscal year.
• This funding includes $102.7 million for additional compensation and benefits, $108.4 million for IT upgrades and security enhancements post-9/11, and $98 million to hire at least 200 professionals to improve auditor oversight and other critical functions.
• The allocation aims to enhance the SEC's capacity in areas such as full disclosure, fraud prevention, risk management, compliance, and market regulation, thereby strengthening its regulatory and enforcement capabilities.

Section 602: Appearance and practice before the Commission

• Section 602 of SOX amends the Securities Exchange Act of 1934 to add Section 4C, which grants the SEC authority to censure or bar individuals from appearing or practicing before it.
• The SEC can take such action if an individual lacks qualifications or integrity, engages in unethical conduct, or violates securities laws.
• For registered public accounting firms or associated persons, improper professional conduct includes intentional or reckless violations of professional standards or negligent conduct that indicates incompetence.
• This provision aims to ensure that only qualified and ethical professionals practice before the SEC.

Section 603: Federal court authority to impose penny stock bars

• Section 603 of SOX amends both the Securities Exchange Act of 1934 and the Securities Act of 1933 to grant federal courts the authority to prohibit individuals from participating in penny stock offerings if they have been involved in misconduct.
• This prohibition can be permanent or for a specified period and applies to anyone engaging with brokers, dealers, or issuers in activities related to penny stocks.
• The SEC can further define or exempt certain activities or individuals through rules or regulations.
• This provision aims to protect investors from fraudulent activities associated with penny stocks.

Section 604: Qualifications of associated persons of brokers and dealers

• Section 604 of SOX amends the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 to enhance the qualifications and regulatory oversight of individuals associated with brokers, dealers, and investment advisers.
• It adds provisions that allow the SEC and state authorities to bar or suspend individuals from associating with these entities if they are subject to final orders for misconduct.
• These amendments ensure that individuals who have been disciplined for fraudulent, manipulative, or deceptive conduct cannot engage in securities, insurance, banking, or related activities, thereby strengthening the regulatory framework to protect investors and maintain market integrity.