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Sarbanes Oxley Act: Ethics

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I need help finding a case of corporate financial abuse related to the Sarbanes-Oxley Act of 2002 and applying this to a digital marketing firm. I would also like help with identifying the mistakes that were made by this company and their leadership. I would like to know what steps the leadership could have taken to prevent or mitigate the repercussions. What is the role of market pressures on unethical behavior? What is the influence of the basics of finance and how has the Sarbanes-Oxley Act of 2002 changed things? What is the influence of Sarbanes-Oxley Act on ethical behavior? Do you think businesses are complying and have become more ethical since this act has been put into place? What changes did companies need to make in how they use and present financial statements after the Sarbanes-Oxley act? How has Sox affected an industry like Digital Marketing?

Thank you. I really appreciate any and all help you can give.

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Solution Summary

The answer to this problem explains Sarbanes Oxley Act and ethics. The references related to the answer are also included.

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A case of corporate financial abuse related to the Sarbanes Oxley Act of 2002 is SEC v. Baker, No. A-12-CA-285-SS, 2012, WL 5499497 (W.D. Tex. Nov. 13, 2012). In this case it was held that corporate executives could lose their financial bonuses and other incentive compensation if their company is required to revise its financial statements as a result of misconduct, even if the executives did nothing improper.
The mistakes made by the company ArthroCare Corporation were that frauds were committed by two senior vice presidents of Arthrocare, John Raffle and David Applegate. The SEC brought action under Sec. 304 of the SOX for statutory reimbursement of cash bonuses, incentives, and equity based compensation earned by ArthoCare's CEO, Michael Baker, and its CFO Michael Gluk during the periods which were restated (2). The mistakes made by the firm were paying its CEO and CFO bonus and incentive compensation even though fraud had been committed by two senior Vice Presidents.
In case of the digital marketing firm: If the digital marketing firm is a public company, and a fraud is perpetrated by top executives to such an extent that the financial statements of the company have to be re-stated, then the bonuses and cash incentives of the CEO and the CFO will be disgorged under section 340 of SOX. It does not matter that the CEO and the CFO were not involved in the fraud. The lesson the digital marketing firm should learn is that its CEO and CFO should identify and stop any fraud being committed as soon as possible. The magnitude of the fraud should be kept so low that it does ...

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Hatim Baxamusa, MBA
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  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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