section 404 sarbanes oxley

Many people get easily confused when they try to understand the uproar that surrounded the passing of the section 404 sarbanes oxley Act of 2002.  However, it’s simple premise of rules and consequences is easier to comprehend if you know the background story of Enron and other big security trading and how they became tied up in a huge scandal that ended with many big business CEO’s in jail and or under government supervision and punishment for years to come.

There were many other huge companies involved in the scandals that rocked the stock market world, but to understand the section 404 sarbanes oxley, it’s easiest to focus on the most well known example, the Enron scandal.  The Enron scandal happened in the early 2000’s and was the result of a combination of upper executives and other higher ranked employees committing hedge trading or insider trading the night before the stock market crashed within the securities market.  The purpose of their insider trading was to come out with a profit since they knew the share values in the securities market were dropping, and the general public took the largest hit with many people losing their IRA’s and 401K’s.

Bush signed the section 404 sarbanes oxley Act in 2002 to tighten legislation on the big businesses who were involved with the securities market to prevent the general public from suffering these huge losses again.  In effect, he tightened the noose around the big businesses outlining regulations that state explicitly what is legal and what is not when dealing with the financial welfare of the public.  section 404 sarbanes oxley is the first legislature to ever be passed that holds CEO’s and high executives responsible for their financial statements and to the general public.  section 404 sarbanes oxley protects the general public from being used again and losing their profits while big businesses profit since it is a vastly unfair practice.

Additionally, section 404 sarbanes oxley also clearly outlines what the consequences are for big businesses that do not follow the regulations, massive fines and jail time.  Opponents of section 404 sarbanes oxley claim that it damages the securities market even more so as businesses cannot compete internationally with other companies if they have to follow the tight regulations placed on them by the federal US government.  They also argue that section 404 sarbanes oxley places too much governmental control on big business, and that they should not be able to regulate business as much which branches back to reform arguments from Franklin Roosevelt’s days.
 

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