The former head of HealthSouth said in court filings Monday that the Sarbanes-Oxley law he is accused of breaking is unconstitutional and that the government used it to file multiple charges for the same conduct to inflate the gravity of its case against him.
According to the Birmingham News:
The other motion asks the court to dismiss the three counts of violating the Sarbanes-Oxley Act, a 2001 federal law that increased penalties on corporate executives who lie, saying the law is unconstitutionally vague and unfair.
The Sarbanes-Oxley law is unconstitutional because it breaks violations into technical, non-material ones and willful ones, the first motion says. That means a corporate finance staffer who makes a non-material mistake on a financial statement can’t be held criminally liable. But the chief executive who certifies the report as accurate can be held criminally liable, the motion says.
U.S. due process “doesn’t permit the imposition of such Draconian secondary liability when the primary conduct itself isn’t criminal,” the motion reads.
The law is also flawed because it imposes criminal penalties not only for filing false financial reports but also for not filing accurate ones. That means a chief executive who fails to sign a financial statement – from negligence, concern over its accuracy, anything – can be charged with a crime.
“A wholly innocent CEO can be damned if he does and damned if he doesn’t,” the Scrushy motion says.
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Thanks Christopher, interesting escalation from the anti S-O side. A few months back, CFO magazine relayed complaitns of several Fort500 execs about its compliance costs, but unless they push back, accounting may replace nursing as the profession with the most severe shortage of labor.
FYI, an accounting prof told me that one exec he knows foresees significant savings from S-O compliance, as it’s forced them to take a hard look at systems and cost allocation. I wonder if the exec has thought about the cost of instilling a passion for systems improvements in him, or who will pay it?
Sarbox creates a Public Company Accounting Oversight Board (PCAOB) to oversee implementation of the Act. However, the Board refuses to respond to Freedom of Information Act requests. Its rationale: we are not a government agency, therefore we do not have to disclose anything to the public. PCAOB is not the government, but it does have the power to tax all public companies to fund its operations.
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