Financial History 142 Summer 2022 - Page 18

TWO DECADES OF THE Sarbanes-Oxley Laws

Adam Rountree
By Simon Constable
At the beginning of the millennium , a massive stock market meltdown along with some notable examples of corporate malfeasance carved a hole in the public ’ s trust in the stock market . The government ’ s response was to enact the Sarbanes-Oxley legislation , which would pile a heap of new regulations on publicly traded corporations and their leaders . At the time , the move saw huge bipartisan support and was generally greeted favorably . However , in the intervening two decades , the fallout from the new laws led to some likely unintended , but rather predictable , outcomes .
The background of the legislation is important , as it sets the scene for the mood of the country . Starting around the year
Activists rally on Wall Street against settlement with WorldCom , June 11 , 2003 . WorldCom , Enron and others became bywords for corporate scandal in the early 2000s .
2000 , the United States got hit with a slew of events that hit deep into the country ’ s psyche . They were the bursting of the epic dot-com bubble , the 9 / 11 attacks on the World Trade Center plus two other locations and the demise of the now-infamous energy company Enron which , it turned out , had been involved in corporate fraud .
The dot-com bubble began benignly enough in the early 1990s as new technology came into being and the first version of the worldwide web was created . What started as a simple investment trend went from fashionable to mania , followed by a collapse beginning in the year 2000 . The tech-heavy Nasdaq-100 Index peaked in early March 2000 at 5048 and then retreated to below 1200 . In other words , it was a bear market of epic proportions . Individual investors as well as professionals got caught in the mess and lost money . It left deep psychological scars on people who ’ d bet their life savings on the future of the web which , at least for a time , seemed like it had no bounds .
During that stock market slide , the 9 / 11 attacks occurred and America ’ s two key stock exchanges , the New York Stock Exchange and the Nasdaq , stayed closed until September 17 . That made it the longest stock trading halt since the bank holiday of 1933 during the Great Depression . Despite the disruption , Wall Street bounced back to business as usual . However , the stoppage only added to the beleaguered feel of a long bear market .
The icing on the cake was the collapse of the $ 63.4 billion energy firm Enron , which at the time was the largest US bankruptcy in history . While companies fail all the time , there was more to this story , and it was something that shook investors deeply . Enron used the unusual accounting practice of mark-to-market . While this works well for stock trading companies , it works less well for non-financial businesses . This method , along with transferring assets off the financial statements , allowed management to hide massive losses . By October 2001 , the company
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