Sarbanes-Oxley Act Signed Into Law as Brief Reform Moment

On July 30, 2002, President George W. Bush signed the Sarbanes-Oxley Act into law, calling it “the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.” The legislation passed with overwhelming bipartisan support—423 to 3 in the House and 99 to 0 in the Senate—in direct response to the Enron and WorldCom accounting scandals.

The act established sweeping reforms for financial reporting, corporate governance, and auditing practices for public companies. It created new criminal penalties for securities fraud, increased prison sentences for white-collar crimes, mandated CEO and CFO certification of financial statements, and established the Public Company Accounting Oversight Board (PCAOB) to regulate accounting firms. The law made it a crime for corporate officers to falsify financial statements, with penalties of up to 20 years in prison.

The legislation represented a brief moment of genuine corporate accountability, emerging from the destruction of Enron, Arthur Andersen’s 85,000 jobs, and WorldCom’s $107 billion bankruptcy. Lawmakers from both parties recognized that systematic accounting fraud threatened the integrity of American capital markets and demanded aggressive criminal penalties to restore investor confidence.

However, the Sarbanes-Oxley moment proved fleeting. After the 2008 financial crisis—which involved fraud on a far larger scale than Enron and WorldCom combined—the Department of Justice chose not to criminally prosecute any major Wall Street executives. The contrast between 2002’s aggressive prosecution of corporate fraud and 2008’s deferred prosecution agreements and corporate fines revealed that Sarbanes-Oxley marked the end, not the beginning, of an era of executive accountability for financial crimes.