Stock Exchange Regulations And The Sarbanes-Oxley ActThe stock exchange scandals and revelations of accounting and financial irregularities, caused the passage of the Accounting Reform and Investor Protection Act of 2002. This is often referred to as the Sarbanes Oxley Act of 2002 after the legislators who sponsored it. This legislation sought to improve the accuracy of financial statements and to ensure full disclosure of information. It also created an oversight board for accounting practices and strengthened the independence of public accounting firms in their auditing activities. Other features were increased corporate responsibility for the accuracy of financial statements, to protect the objectivity of securities analysts and improve the SEC’s resources and oversight functions. As the accounting fraud scandals were occurring, the role of stock analysts came under great scrutiny. These analysts worked for investment banks and issued research reports about stocks along with recommendations to buy, hold, or sell. Curiously, even after Enron executives admitted to accounting fraud, most stock analysts retained a buy recommendation for the company. As you might imagine, this causes further embarrassment to the financial services industry and reputation of the stock exchange as a whole. The fact that few analysts issued sell recommendations during the bear market led the New York attorney general to conduct an investigation. Most Wall Street firms and investment banks came under the New York attorney general’s jurisdiction because they were based in New York City. The investigation led to the discovery of e-mails and other evidence showing conflicts of interest. Analysts gave favorable recommendations to companies that were clients or potential clients of their investment banks. Privately these analysts had disparaged or even ridiculed the stock value of certain companies, while publicly they had recommended the stocks in an effort to win investment-banking business. In 2003, in a settlement with the New York attorney general’s office and the SEC, ten of the nation’s leading investment banks agreed to pay a total of $1.4 billion in fines and to change certain practices. The settlement established a $432.5 million fund to provide independent stock research for investors. Two stock analysts were barred from the industry for life and fined a total of $20 million. Would you like to learn more about trading? You would? Great! Then please click here for an excellent
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