The Key Securities Fraud Provisions in the Sarbanes-Oxley Act 

by Scott L. Silver

Last Updated June 3, 2025 In Laws, Securities Fraud

The federal Sarbanes-Oxley Act (SOX) was enacted in 2002 in response to the financial scandals involving ENRON, WorldCom, and Tyco. It contains several key provisions that protect investors from false or inaccurate reporting of corporate financial matters and reduce fraud.

Violations of SOX can lead to hefty government fines and criminal penalties, but the law incentivizes transparency and prompt examination of financial discrepancies. Silver Law Group’s securities fraud attorneys can use violations of the Sarbanes-Oxley Act as evidence in class action lawsuits.

Certification of Financial Disclosures

Securities and Exchange Commission (SEC) rules require companies listed on the public exchanges to make periodic disclosures of their financial condition. They must also disclose events that can impact the value of their stock. Prior to enactment of the Sarbanes-Oxley Act, there were few consequences for corporate officers if they released false or misleading  information.

SOX changed that. Section 302 of the Act requires corporate officers to certify that financial disclosures are complete, accurate, and in compliance with SEC regulations. False certification is a criminal offense.

The Chief Executive Officer and Chief Financial Officer of the company are required to sign the certifications. They can make subsequent corrections to inadvertent errors, but imposing criminal liability on a company’s top executives for false statements incentivizes the organization to verify the accuracy of all public statements.

Strengthened Internal Controls and Audit Standards

SOX requires companies to devote substantial attention to the integrity of their internal financial reporting procedures. Section 404 of the Act requires company managers to establish internal controls to prevent fraud, continually assess these measures, and implement improvements when necessary. The company must include in its annual report a discussion of the internal control measures and their effectiveness. An independent auditor must evaluate the company’s internal controls and report its findings as part of Form 10K.

SOX also imposed robust conflict of interest prohibitions governing the relationship between independent auditing firms and the companies they audit. These provisions work to buttress the integrity of independent audits, increasing accuracy and transparency.

These aspects of SOX result in more disclosure of a company’s financial activities and more accurate disclosure. Wrongdoing and discrepancies are identified promptly, allowing an attorney representing bilked investors to take immediate action against the company.

Sarbanes-Oxley Has Broad Application

One of the most useful and effective features of SOX is its broad application, as it applies to all companies that are listed on the U.S. exchanges or that are publicly traded in the U.S. It also applies to companies preparing to launch initial public offerings (IPOs), and accounting firms that audit these companies.

The law’s wide reach ensures that everyone involved in assessing or reporting the finances of a publicly traded company is subject to its provisions. The threat of serious enforcement action reduces any incentive among auditors, accounting firms, or the company’s personnel to provide false or misleading information to the public.

SOX also protects whistleblowers from retaliatory actions. The information a whistleblower provides can be critical evidence that Silver Law Group can use when investors bring lawsuits for securities fraud.

Contact Silver Law Group When Sarbanes-Oxley Act Disclosures Point to Fraud

The Sarbanes-Oxley Act provides a potent incentive for companies to provide accurate financial information. However, despite key provisions to deter securities fraud, compliance is not universal and some companies still issue misleading or inaccurate information that hurts investors.

Silver Law Group is a firm representing defrauded investors nationwide. Contact us if you believe wrongdoing by company officers, accountants, auditors, or brokers has caused you to lose your investment.