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Criminal Liability of Corporate Officers

Under Section 807 of The Sarbanes-Oxley Act of 2002 (Act), any person who knowingly commits securities fraud is subject to a hefty fine, a prison term of up to 25 years, or both. Section 807 does not criminalize securities laws violations for the first time; however, it does combine several existing laws so as to facilitate and streamline federal prosecutions. Section 807 does impose significantly harsher criminal penalties than the penalties prescribed under prior laws.

Severe criminal penalties may also be imposed pursuant to the Act (up to 20 years in prison and a $5,000,000 fine) if chief executive officers and chief financial officers provide materially inaccurate information in financial statements that are filed with the Securities Exchange Commission (SEC). Chief executive officers or chief legal officers who sign these statements must personally certify the information contained therein. If the statements are materially inaccurate, the signing official can face a fine of up to $5,000,000 and prison terms of up to 20 years. The penalty depends on whether the certification of materially inaccurate information was done knowingly or willfully. A knowing violation subjects the signing official to 10 years in prison and/or a $1,000,000 fine. A willful violation subjects the signing official to faces a maximum $5,000,000 fine and up to 20 years in prison.

Additionally, the Act now makes it a felony to knowingly alter, destroy, conceal, or otherwise falsify a document with intent to impede, obstruct, or influence “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.” It is also a felony to commit any of those acts knowingly with intent to impede, obstruct, or influence a federal court or congressional proceeding. A person convicted of these crimes can be fined, imprisoned up to 20 years, or both. The Act targets the actual perpetrator, not just the person who may have directed the prohibited activity.

The Act also targets any person who attempts or conspires to commit securities fraud violations under the Act. Enhanced criminal penalties are available for mail and wire fraud convictions and violations of the Employee Retirement Income Security Act of 1974 (ERISA).

The penalties under the Act resulted from the United States Sentencing Commission’s review and amendment of the Federal Sentencing Guidelines. Congress directed that the Sentencing Guidelines be amended “where appropriate to ensure that they “reflect the serious nature of the offenses and the penalties set forth in this Act, the growing incidence of serious fraud offenses . . ., [and] the need to modify the sentencing guidelines and policy statements to deter, prevent, and punish such offenses.” The Federal Sentencing Guidelines basically increased the offense level for corporate (organizational) crimes such as securities fraud, frauds that cause catastrophic loss, crimes involving more than 250 victims, crimes that endanger a public company’s solvency, and the conduct prohibited under the Act.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.