Hester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent public statement. The views expressed in this post are those of Commissioner Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff.
Thank you, Patricia [Wellmeyer]. I am pleased to be at today’s Audit Committee Summit and to be at the University of California, Irvine, albeit only virtually. Before I begin, I must remind you that my remarks reflect solely my individual views as a Commissioner and do not necessarily reflect the views of the full Securities and Exchange Commission or my fellow Commissioners.
This year, we celebrate the twentieth anniversary of the Sarbanes-Oxley Act (“Sarbanes-Oxley” or the “Act”). Two decades should give us enough experience with Sarbanes-Oxley and distance from the events that sparked its passage to assess this law with fresh (or maybe somewhat jaded) eyes and draw lessons from it for current regulatory efforts. I do not have time to conduct a full review today since I promised Patricia that I would not speak for more than fifteen minutes, but I will offer a few thoughts on the law and its legacy and perhaps inspire others to do the heavy lifting.
Sarbanes-Oxley passed Congress with broad support. It responded to several notorious corporate accounting and disclosure frauds at large, well-known companies like Enron, WorldCom, Adelphia, and Tyco. Long undetected by investors, auditors, and regulators, these companies’ problems cascaded suddenly and painfully into the markets and public discourse. The strong legislative reaction is, therefore, unsurprising, but crafting an appropriate law to respond quickly and comprehensively to a scandal is difficult.
Predicting how the words on the legislative page will play out in practice is also challenging. For example, a 2015 Supreme Court case, Yates v. United States, considered whether Sarbanes-Oxley’s criminal prohibition on destroying “any record, document, or tangible object with the intent to impede, obstruct, or influence” an investigation applied to tossing undersized fish back into the ocean after being told by a government official to keep the fish onboard as evidence of breaking federal fishing regulations. The Court said no:
A fish is no doubt an object that is tangible; fish can be seen, caught, and handled, and a catch, as this case illustrates, is vulnerable to destruction. But it would cut §1519 loose from its financial-fraud mooring to hold that it encompasses any and all objects, whatever their size or significance, destroyed with obstructive intent.
In reaching that conclusion, the Court rejected a singular focus on the dictionary definition of “tangible object.” Justice Ginsburg explained: “Ordinarily, a word’s usage accords with its dictionary definition. In law as in life, however, the same words, placed in different contexts, sometimes mean different things.” The dissent, by contrast, looked to the dictionary (supplemented by Dr. Seuss’s One Fish Two Fish Red Fish Blue Fish) to conclude that the Sarbanes-Oxley provision clearly covered fish.
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