Sarbanes-Oxley Act of 2002 (SOX): An Overview

By: W. Bruce Newsome Robert W. Wilson Haynes and Boone, LLP 901 Main Street, Suite 3100 Dallas, TX 75202 April 19, 2006
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SOX
SOX was signed into law July 30, 2002 to protect investors by improving the reliability and accuracy of disclosures made pursuant to the securities laws. SOX provisions include, but are not limited to, the following issues: Public Company Accounting Oversight Board Auditor Independence Corporate Responsibility/Governance Enhanced Financial Disclosures Enhanced Penalty Provisions

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To Whom Does SOX Apply?

SOX is generally applicable to all companies, regardless of size, who are required to file reports with the SEC under the 1934 Act or that have a registration statement on file under the 1933 Act. Certain SOX provisions apply only to companies listed on a national securities exchange. Small business issuers that file reports on Form 10-QSB and Form 10-KSB are generally subject to SOX in the same way as larger companies.

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Public Company Accounting Oversight Board (PCAOB)

SOX established the creation of the PCAOB to oversee the audit of public companies that are subject to the securities laws. PCAOB is charged with several duties including: Registering public accounting firms that prepare audit reports; Establishing auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports; and Conducting inspections of registered public accounting firms and conducting investigations and disciplinary proceedings, where justified, concerning registered public accounting firms.
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Auditor Independence
Pursuant to SOX, the SEC has auditor independence requirements that are applicable to all public companies, regardless of size, and include the following: Prohibition of certain non-audit services; Requirement of audit committee pre-approval of all audit and non-audit services; Audit partner rotation; Auditor reports to the audit committee; Certain prohibited employment relationships; and Prohibited compensation.

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Auditor Independence
Prohibition of certain non-audit services: SOX Section 201 prohibits a registered accounting firm from providing the following non-audit services contemporaneously with an audit: Bookkeeping or other services related to the accounting records or financial statements of the audit client; Financial information systems design and implementation; Appraisal or valuation services, fairness opinions, or contribution-in-kind reports; Actuarial services;
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Auditor Independence
Prohibition of certain non-audit services (cont.): Internal audit outsourcing services; Management functions or human resources; Broker or dealer, investment advisor, or investment banking services; and Legal services and expert services unrelated to the audit. Registered public accounting firms are not prohibited from providing tax compliance, tax planning, or tax advice to audit clients, subject to the normal audit committee preapproval requirements.

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Auditor Independence
Pre-approval requirements and audit partner rotation: SOX requires that all audit and non-audit services be preapproved by the audit committee of the issuer. A de minimus exception does apply to this requirement under certain circumstances. SOX makes it unlawful to provide audit services to an issuer if the lead (or coordinating) audit partner (having primary responsibility for the audit), or the audit partner responsible for reviewing the audit, has performed audit services for that issuer in each of the 5 previous fiscal years of that issuer.

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Auditor Independence
Audit reports, prohibited relationships and compensation: SOX requires all registered public accounting firms to timely report to the respective audit committee: All applicable critical accounting policies and practices; All alternative treatments of financial information within generally accepted accounting principles that were discussed with management; and Other material written communications between the accounting firm and management.

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Auditor Independence
Audit reports, prohibited relationships and compensation (cont.): SOX makes it unlawful for a registered public accounting firm to perform any audit service for an issuer if the chief executive officer, controller, chief financial officer, chief accounting officer, or any person serving in an equivalent position for the issuer, was employed by that accounting firm and participated in any capacity in the audit of that issuer during the one year period preceding the date of the initiation of the audit. SOX provides that an accountant is not independent of an audit client if, at any time during the engagement, any audit partner earns or receives compensation based on the audit partner procuring engagements with that client, other than audit or attest services.
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Corporate Responsibility/Governance
NASDAQ Stock Market, Inc. (NASDAQ), The American Stock Exchange (AMEX) and SOX require issuers to have in place several corporate governance measures, including: Certain board composition measures; Independence requirements; Audit Committee requirements; CEO/CFO certifications; Improper auditor influence prohibitions; Reimbursement requirements; Director & officer bars; Certain insider trading requirements; and Enhanced attorney responsibilities.

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Corporate Responsibility/Governance
Board Composition and Independence: NASDAQ and AMEX each require listed companies to have a majority of independent directors except for (i) controlled companies, (ii) foreign companies, and (iii) small business issuers. The board of directors must affirmatively determine that each director does not have a material relationship with the listed company, which would interfere with the exercise of independent judgment. Independent director means a person other than an officer or employee of the company or any parent or subsidiary and also excludes the following:

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Corporate Responsibility/Governance
Board Composition and Independence (cont.) A director who is, or during the past three years was, employed by the company or by any parent or subsidiary of the company, other than prior employment as an interim Chairman or CEO;

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Corporate Responsibility/Governance
Board Composition and Independence (cont.) A director who accepts or has an immediate family member who accepts any payments from the company or any parent or subsidiary of the company in excess of $60,000 during the current or any of the past three fiscal years (does not include compensation for board service, payments from investments, payments to a family member who is a non-executive employee, compensation received for former service as interim Chairman or CEO, benefits under a tax-qualified retirement plan, nondiscretionary compensation, certain permitted loans, and payments from a financial institution in connection with the deposit of funds);
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Corporate Responsibility/Governance
Board Composition and Independence (cont.) A director who is an immediate family member of an individual who is, or has been in any of the past three years, employed by the company or any parent or subsidiary of the company as an executive officer;

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Corporate Responsibility/Governance
Board Composition and Independence (cont.) A director who is, or has an immediate family member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments (other than those arising solely from investments in the company's securities or payments under nondiscretionary charitable contribution matching programs) that exceed 5% of the organization's consolidated gross revenues for that year, or $200,000, whichever is more, in any of the most recent three fiscal years;
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Corporate Responsibility/Governance
Board Composition and Independence (cont.) A director of the listed company who is, or has an immediate family member who is, employed as an executive officer of another entity where at any time during the most recent three fiscal years any of the listed company's executive officers serve on that entity's compensation committee; and A director who is, or has an immediate family member who is, a current partner of the company's outside auditor, or was a partner or employee of the company's outside auditor who worked on the company's audit at any time during any of the past three years.
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Corporate Responsibility/Governance
Audit Committee Requirements: NASDAQ and AMEX require each issuer to have an Audit Committee of at least three members, each of whom: Satisfies the independence requirements of board members generally, and satisfies Rule 10A-3 under the Securities Act of 1934; Is able to read and understand fundamental financial statements, including a company's balance sheet, income statement, and cash flow statement; and

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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): Additionally, each issuer must have at least one member of the audit committee who is financially sophisticated, in that he or she has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, including, but not limited, to being or having been a chief executive officer, chief financial officer, or other senior officer with financial oversight responsibilities.

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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): SOX requires all members of the Audit Committee to be independent. Independent means audit committee members may not, directly or indirectly, accept any consulting, advisory or other compensatory fee from the issuer or a subsidiary of the issuer, other than in the members capacity as a director or as a member of any board committee. Independent also means that a member of the audit committee may not be an affiliated person of the issuer or any subsidiary of the issuer.

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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): SOX creates a safe harbor for determining affiliate status. A person who is not an executive officer, director, or 10% shareholder of the issuer would be deemed not to control the issuer and therefore would fall within the safe harbor. A person who does not fall within the safe harbor, but believes they do not control the issuer, can rely on a facts and circumstances analysis.

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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): The audit committee has responsibility for the oversight of the audit function. The committee is responsible for the appointment, compensation, retention, and oversight of the work of the independent auditor. The committee has the responsibility to resolve any disagreements between management and the auditor regarding financial reporting. The oversight responsibilities also include hiring and firing the independent auditor, approving all audit engagement fees and terms, and all significant non-audit engagements of the independent auditor.
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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): The committee must be given appropriate funding to engage the independent auditor and outside advisors. The committee must establish procedures for the receipt, retention, and treatment of complaints received by the listed issuer regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the listed issuer of concerns regarding questionable accounting or auditing matters.

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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): Issuers must disclose whether a financial expert is a member of the audit committee, and if not, why not. A financial expert must possess the following attributes: An understanding of GAAP and financial statements; The ability to apply GAAP in connection with the accounting estimates, accruals and reserves; Experience preparing, auditing, analyzing or evaluating financial statements of a complexity comparable to that of the companys financial statements, or experience actively supervising persons engaged in such activities; An understanding of internal controls and procedures for financial reporting; and An understanding of audit committee function.
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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): A person may qualify as an audit committee financial expert based upon relevant experience including: Education and experience as a principal financial or accounting officer, controller, public accountant or auditor or experience in one or more positions that involve the performance of similar functions; Experience actively supervising a person engaged in one of the described activities; or Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing or evaluation of financial statements.
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Corporate Responsibility/Governance
Audit Committee Requirements (cont.): Identification of the Audit Committee in Annual Reports An issuer subject to the SEC proxy rules is required to disclose in its proxy statement or information statement, if action is to be taken with respect to the election of directors, whether the issuer has a standing audit committee, the names of each audit committee member, the number of meetings held by the audit committee during the last fiscal year, and the functions performed by the committee. The members of the audit committee must be included, or incorporated by reference into the annual statement. A listed issuer is also required to disclose whether the members of its audit committee are independent using the definition of independence for audit committee members included in the applicable listing standards.
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Corporate Responsibility/Governance
CEO/CFO Certifications: As part of the various corporate governance measures required of issuers, SOX Sections 906 and 302 require certifications to be made by the chief executive officer and the chief financial officer of the company. SOX requires the CEO and CFO to furnish a written certification with each SEC periodic report filed containing financial statements certifying that the financial statements and the disclosures therein fairly present, in all material respects, the operations and financial condition of the issuer.
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Corporate Responsibility/Governance
CEO/CFO Certifications (cont.): The criminal penalty for a false 906 certification are up to (1) 20 years in prison for a willful violation; and (2) ten years for a reckless and knowing violation. SOX requires the CEO and CFO of each public company filing a form 10-K/10-KSB or 10-Q/10-QSB to certify (i) that the financial statements filed with the SEC fairly present, in all material respects, the operations and financial condition of the issuer, (ii) as to the adequacy of the issuers disclosure controls and procedures and internal controls, and (iii) as to certain other matters.
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Corporate Responsibility/Governance
Improper Auditor Influence Prohibitions: SOX makes it unlawful for any officer or director of an issuer, or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce, manipulate, or mislead any independent or certified accountant engaged in the performance of an audit of the financial statements of the issuer for the purpose of rendering such statements materially misleading. The types of conduct that could be considered improper include, but are not limited to: Offering or paying bribes or other financial incentives, including offering future employment or contracts for non-audit services;
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Corporate Responsibility/Governance
Improper Auditor Influence Prohibitions (cont.): Providing an auditor with inaccurate or misleading legal analysis; Blackmailing; Making physical threats; and Attempting to have a partner removed from the audit engagement or threatening to cancel existing or future engagements because the partner objects to the issuers accounting.

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Corporate Responsibility/Governance
Reimbursement Requirements and D&O Bars: SOX provides that if an issuer is required to restate its financial statements because of noncompliance with securities laws, the CEO and CFO must reimburse the issuer for (1) any bonus or incentive or equity based compensation received in the 12 months prior to the restatement and (2) any profits realized from the sale of issuer securities within the preceding 12 months. SOX authorizes a court to prohibit a violator of certain SEC rules from serving as an officer or director of an issuer if the persons conduct demonstrates unfitness to serve.
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Corporate Responsibility/Governance
Insider Trading Requirements: In response to certain insider trading transactions that took place during the Enron scandal, Congress included a provision in SOX prohibiting certain insider transactions during plan blackout periods. SOX prohibits any director or executive officer of an issuer of any equity security from, directly or indirectly, purchasing, selling or otherwise acquiring or transferring any equity security of the issuer during a pension plan blackout period that temporarily prevents plan participants or beneficiaries from engaging in equity securities transactions through their plan accounts, if the director or executive officer acquired the security in connection with his or her service or employment as a director or executive officer.
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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): In 2003, the SEC adopted Regulation Blackout Trading Restriction (BTR). Under BTR, a transfer of an equity security of an issuer during a blackout period will be deemed to be a transfer involving an equity security acquired in connection with service or employment as a director or executive officer unless the director or officer can establish by specific identification of securities that the transfer did not involve equity securities acquired in connection with service or employment

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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): Blackout period generally means any period of more than three consecutive business days during which the ability to transfer an interest in any equity security of an issuer held in an individual account plan is temporarily suspended by such issuer or by a fiduciary of the plan with respect to at least 50% of plan participants or beneficiaries under all of the issuers individual account plans that permit participants or beneficiaries to acquire or hold equity securities of the issuer. Certain transactions are exempt from the trading restrictions: Acquisitions of equity securities under dividend or interest reinvestment plans;
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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): Purchases or sales of equity securities pursuant to certain tax-conditioned plans, other than discretionary transactions; Purchases or sales of equity securities pursuant to a contract, instruction or written plan that satisfies the affirmative defense conditions of Rule 10b5-1(c), unless the plan was entered into or modified during the blackout period or at a time when the director or executive officer was aware of the actual or approximate beginning and ending dates of the blackout period;
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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): Increases or decreases in the number of equity securities held as a result of a stock split or stock dividend applying equally to all equity securities of that class, including a stock dividend in which equity securities of a different issuer are distributed, and acquisitions of rights, such as shareholder or preemptive rights, pursuant to a pro rata grant to all holders of the same class of equity securities;

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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): Compensatory grants and awards of equity securities pursuant to a plan that, by its terms, permits directors or executive officers to receive grants or awards, provides for grants or awards to occur automatically, and specifies the terms and conditions of the grants or awards; Exercises, conversions, or terminations of derivative securities that were not written or acquired during the blackout period and that meet certain other requirements; Acquisitions or dispositions of equity securities involving a bona fide gift or a transfer by will or the laws of descent and distributions;
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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): Acquisitions or dispositions of equity securities compelled by the laws or other requirements of an applicable jurisdiction; and Acquisitions or dispositions of equity securities in connection with a merger, acquisition, divestiture, or similar transaction occurring by operation of law.

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Corporate Responsibility/Governance
Insider Trading Requirements (cont.): SOX provides for two remedies if the provision is violated: Under Section 306(a)(1), a violation is treated as a violation of the 1934 Act and subject to sanctions and SEC enforcement action. Under Section 306(a)(2), where a director or executive officer realizes a profit from a prohibited transaction during a blackout period, the issuer, or a security holder of the issuer on its behalf, may bring an action to recover the profit.
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Corporate Responsibility/Governance
Enhanced Attorney Responsibilities: SOX requires an attorney to report evidence of a material violation of securities law or breach of fiduciary duty or similar violation by the company or any agent thereof, to the chief legal counsel or the chief executive officer of the company; and

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Corporate Responsibility/Governance
Enhanced Attorney Responsibilities (cont.): If the counsel or officer does not appropriately respond to the evidence (adopting, as necessary, appropriate remedial measures or sanctions with respect to the violation), requiring the attorney to report the evidence to the audit committee of the board of directors of the issuer or to another committee of the board of directors comprised solely of directors not employed directly or indirectly by the issuer, or to the board of directors. Section 307 applies to all attorneys, both in-house and outside counsel appearing and practicing before the SEC.
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Corporate Responsibility/Governance
Enhanced Attorney Responsibilities (cont.): Appearing and practicing before the SEC includes: Transacting any business with the SEC, including communication in any form; Representing an issuer in an SEC administrative proceeding or investigation; Providing advice on any document that the attorney has notice will be filed with the SEC or incorporated into a document that will be filed; and Advising an issuer as to whether information or a statement, opinion, or other writing is required under the securities laws to be filed with or submitted to, or incorporated into any document that will be filed with the SEC.
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Corporate Responsibility/Governance
Enhanced Attorney Responsibilities (cont.): Section 307 makes it clear that the attorney represents the issuer and not the officers or directors or other individuals that the attorney regularly communicates with. The attorney owes his professional and ethical obligations to the issuer as the organization. Section 307 is triggered when the attorney becomes aware of evidence of a material violation, which means credible evidence, based upon which it would be unreasonable, under the circumstances, for a prudent and competent attorney not to conclude that it is reasonably likely that a material violation has occurred, is ongoing, or is about to occur.
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Enhanced Financial Disclosures

SOX established enhanced financial disclosure obligations upon issuers, including: Certain disclosures in periodic reports; Enhanced conflict of interest provisions; Disclosures of transactions involving management and principal stockholders; Managements assessment of internal controls; Code of ethics; Enhanced review of periodic disclosures; and Real time issuer disclosures.

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Enhanced Financial Disclosures

Disclosures in periodic reports: SOX requires each financial report that contains financial statements and is required to be prepared in accordance with generally accepted accounting principles, to reflect all material correcting adjustments that have been identified by a registered public accounting firm. SOX also requires that each annual and quarterly financial report required to be filed with the SEC disclose all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the issuer with unconsolidated entities or other persons, that may have a material current or future effect on financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses.
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Enhanced Financial Disclosures

Disclosures in periodic reports (cont.): The SEC rules, in part, require disclosure of the following information: The nature and business purpose of the off-balance sheet arrangements; The importance of the off-balance sheet arrangements to the issuer for liquidity, capital resources, market risk or credit risk support, or other benefits; The overall magnitude of a registrants off-balance sheet activities, the specific material impact of the arrangements on a registrant and the circumstances that could cause material contingent obligations or liabilities to come to fruition; and
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Enhanced Financial Disclosures

Any known event, demand, commitment, trend or uncertainty that will, or is reasonably likely to, result in the termination, or material reduction in availability to the registrant, of its off-balance sheet arrangements that provide the registrant with material benefits. Enhanced conflict of interest provisions: SOX prohibits an issuer, including any subsidiary, from directly or indirectly extending or maintaining credit, or to arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to any director or executive officer. A preexisting extension of credit on the date of enactment of this section is excluded, provided there is not a subsequent material modification to the extension of credit.
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Enhanced Financial Disclosures

Disclosures involving management and principal stockholders: Every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of equity security (other than an exempted security) which is registered pursuant to Section 12, or who is a director or an officer of the issuer of such security, is required to file statements of such ownership with the SEC.

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Enhanced Financial Disclosures

Disclosures involving management and principal stockholders (cont.): The statements must be filed: At the time of the registration of such security or the effectiveness of the registration statement; Within 10 days after such person becomes the beneficial owner, director, or officer; and If there has been a change in beneficial ownership involving such security, by the end of the second business day following the day on which the subject transaction was executed.

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Enhanced Financial Disclosures

Management assessment of internal controls: SOX requires management to make an assessment of the issuers internal controls. The SEC requires each issuer to include in its internal control report in the annual 10-K: A statement of managements responsibilities for establishing and maintaining adequate internal control over financial reporting of the issuer; A statement identifying the framework used by management to conduct the required evaluation of the effectiveness of the issuers internal control over financial reporting;

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Enhanced Financial Disclosures

Management assessment of internal controls (cont.): Managements assessment of the effectiveness of the internal control over financial reporting as of the end of the issuers most recent fiscal year, including a statement as to whether the issuers internal control over financial reporting is effective; and A statement that the registered public accounting firm that audited the financial statements included in the annual report has issued an attestation report on managements assessment of the issuers internal control over financial reporting.

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Enhanced Financial Disclosures

Management assessment of internal controls (cont.): SOX also requires reporting companies to perform quarterly evaluations of changes that have materially affected, or are reasonably likely to materially affect, the companys internal control over financial reporting. The requirement for implementing managements assessment of internal controls is not effective until the first fiscal year ending on or after July 15, 2007 for issuers that are not accelerated filers.

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Enhanced Financial Disclosures

Management assessment of internal controls (cont.): An accelerated filer means an issuer that first meets the following conditions as of the end of its fiscal year: The aggregate market value of the voting and nonvoting common equity held by non-affiliates of the issuer is $75 million or more, computed by use of the price at which the common equity was last sold, or the average of the bid and asked prices of such common equity, as of the last business day of the issuers most recently completed second fiscal quarter;

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Enhanced Financial Disclosures

The issuer has been subject to the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 for a period of at least twelve calendar months; The issuer has filed at least one annual report; and The issuer is not eligible to use Forms 10-KSB and 10QSB for its annual and quarterly reports. Code of ethics: SOX requires issuers on their annual reports to disclose whether or not they have adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, and if the issuer has not adopted a code of ethics, why it has not.
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Enhanced Financial Disclosures

Code of Ethics (cont.): SOX also requires issuers to report on Form 8-K of any changes to its code of ethics within four days of such change. The new Form 8-K item specifically requires disclosure of: The nature of any amendment to the companys code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or other similar persons; and The nature of any waiver, including any implicit waiver, from a provision of the code of ethics granted by the company to one of these specified officers, the name of the person to whom the company granted the waiver and the date of the waiver.
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Enhanced Financial Disclosures

Enhanced review of periodic disclosures and real time disclosures: SOX requires the SEC to review disclosures on a regular and systematic basis, and requires the SEC to review at least once every three years, a public companys disclosures. The SEC in its reviews will focus on: Issuers that have made material restatements; Issuers with significant volatility in their stock price; and Issuers with the largest market capitalization. SOX requires issuers to disclose on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer, in plain English.

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Enhanced Penalty Provisions

SOX provides for several corporate accountability and enhanced penalty provisions, including in part: Criminal penalties for altering documents; Changes in the statute of limitations; Protection for whistleblowers; Criminal penalties for defrauding shareholders; and Penalties for false certification.

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Enhanced Penalty Provisions

Criminal penalties for altering documents: SOX provides that whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both. SOX also requires auditors to retain all audit and review work papers for at least five years. Failure to comply can result in both a fine and possible imprisonment of up to 10 years.
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Enhanced Penalty Provisions

Statute of limitations and whistleblower protections: SOX provides that a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, may be brought not later than the earlier of (i) 2 years after discovery of the facts constituting the violation or (ii) 5 years after the violation. SOX provides protection for whistleblowers by providing that no company may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee who provides information or otherwise assists in any investigation regarding a violation of the securities laws, when the investigation is conducted by a federal regulatory or law enforcement agency, a member of Congress or any congressional committee, or a person with supervisory authority over the whistleblower.
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Enhanced Penalty Provisions

Penalties for defrauding shareholders: SOX provides that anyone who knowingly executes, or attempts to execute a scheme or artifice to defraud any person in connection with any security of an issuer registered pursuant to Section 12 or to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any security of an issuer, will be subject to fine or imprisonment of up to 25 years, or both.

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Enhanced Penalty Provisions

False certification: SOX requires certification by the chief executive officer and the chief financial officer. If the chief executive officer or chief financial officer provide their certification knowing that the periodic reports do not comply with the requirements of section 13(a) or 15(d), they will be subject to: A fine of not more than $1,000,000 or imprisonment of up to 10 years, or both; and If the violation is willful, the fine increases up to a maximum of $5,000,000 or imprisonment of up to 20 years, or both.
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