A Bummer Party for SOX, As Libor Party Gets Messier

Receiving Wide Coverage ...

Happy Birthday, Dear SOX: Remember that big financial law that came between the Gramm-Leach-Bliley Act and the Dodd-Frank Act? Policymakers and pundits have spent so much time lately debating whether to roll back those two laws that we (I'll omit the auditing department from this blanket reference) have forgotten the Sarbanes-Oxley Act that was supposed to clean up auditing conflicts, public disclosures and do other things to renew our faith in public companies' financial reports. Yeah, right. Well, today is the 10th birthday of the law spurred by the Enron and WorldCom crises and named after the chairman of the Senate Banking and House Financial Services committees of the time, and the recollections are harsh.

Sarbanes-Oxley's biggest weapon, jail time for executives who knowingly certify inaccurate financial reports, has gone largely unused in connection with the financial crisis, says a story in the "Law" column of the Journal. Prosecutors have not brought any criminal cases tied to the crisis, and regulators have mounted a handful of civil ones, the story says. Such charges are hard to prove, and the Securities and Exchange Commission argues it has brought civil false-certification charges against more than 200 parties such as executives at Fannie Mae and Countrywide, but the government has not used the power against "executives from any of the major banks suspected of misleading the public about their finances during the crisis," the story says. Experts urged more aggressiveness.

An FT editorial brands Sarbanes-Oxley a flat-out failure. Corporate audits are no more reliable than they were a decade ago and "audit companies too often deny responsibility for frauds that happen on their watch," writes Francine McKenna, who is also an American Banker BankThink columnist. She cites the folks who were supposed to be looking over the shoulder of Jamie Dimon at JPMorgan Chase (JPM) and his traders as an example. She calls for more reforms, such as time limits on the use of any one auditor and an overhaul of a system still filled with conflicts of interest.

Libor-ious Litigation, Probe: The fallout from the Libor scandal continues. Berkshire Bank, an $881-million asset bank in the New York area, has sued 16 banks that set the benchmark rate in recent years, accusing them giving mortgage borrowers a break at its expense, the Journal reports. The proposed class-action lawsuit in U.S. District Court in New York says that "tens, if not hundreds, of billions of dollars" of loans made or sold in New York were affected, according to the story. "Libor could well be the asbestos claims of this century," a law professor is quoted as saying. American Banker

Meanwhile, George Osborne, the chancellor of the exchequer in the United Kingdom, wants the independent review into the Libor scandal to be completed during September, the FT reports. British officials will announce today the terms of a review by Martin Wheatley of the Financial Services Authority.