The meaning of the Sarbanes-Oxley Act (“SOX”) is still being contested even though it is now nearly five years since its enactment. This is not to say the words and phrases that make up the statutory mandates and implementing regulations are hopelessly muddled. Though there are plenty of ambiguities for lawyers and their clients to worry over, most of the requirements are clear enough as “law on the books” to expect at least formalistic compliance with them. But simply because something is enacted into law does not tell us much about how strongly it will influence economic behavior. At the very least, there is the rational calculus of likelihood of detection and magnitude of sanction. Most of SOX’s implementation and enforcement is left to the discretion of the Securities and Exchange Commission (“SEC”) and other public agencies. We therefore should estimate what the regulators will do—which will bring into play an interesting mix of external politics and the agencies’ own beliefs. Courts, too, will play a role in saying what SOX means when they review the Commission’s rules and enforcement actions, as will Congress in its continuing legislative oversight.
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