Corporate Fraud and Sarbanes-Oxley – LAW 421

Topics about Corporate Fraud and Sarbanes-Oxley

The following business law study guide covers topics related to the Corporate Fraud and the Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act (2002) imposed stricter regulations on how corporations do business in the following area(s):

​​ auditing ​​ corporate governance ​​ financial reporting.

Explanation: The Sarbanes Oxley act of 2002 contains a total of 11 sections of provisions. Among these elements, auditing, corporate governance, and financial reporting are covered extensively. The ultimate goal of the act was to ensure that these areas were operated with stricter internal and external controls.

Ben is the manager of a branch of a large bank

Ben is the manager of a branch of a large bank. He has regularly taken money from customer’s accounts for his own use and falsified the banks records to “cover” his actions. Ben is guilty of

​​ embezzlement.

Explanation: Embezzlement occurs when a party unlawfully acquires assets from an organization for personal uses. In this case, Ben is embezzling money from clients, an act that will have negative consequences on all stakeholders.

Joan is the CFO of Para Corp. and is a year from retirement

Joan is the CFO of Para Corp. and is a year from retirement. In order to guarantee herself a substantial bonus and to boost her retirement benefits, she prepares and intentionally certifies as “true and correct” false financial reports. She further takes steps to assure that the financial report are not reviewed through the normal system of internal controls maintained by Para Corp. Under the provisions of the Sarbanes-Oxley Act (2002), if her fraud only involves her, what criminal penalties are possible for Joan?

​​ $10 million in fines and up to 20 years in prison

Explanation: Under Sarbanes-Oxley, an individual can face up to 20 years in prison and $5 million per offense. Because Joan has committed two separate offenses in this situation, the total potential fine is $10 million.

Stan is an investment manager. He has received money from various investors giving them a promise of very high returns. 

Stan is an investment manager. He has received money from various investors giving them a promise of very high returns. The invested money is not supplying enough return to enable payment of the rate promised, so Stan has started using new investors’ money to pay older investors at the promised rates. By advertising and by word of mouth, people are anxious to invest with Stan because of the money being paid, and with the influx of new investors, he is able to continue operating. Stan is

​​ operating a Ponzi scheme.

Explanation: When a finance manager is using funds from one set of new investors to pay off old investors, he or she is operating a Ponzi scheme. This is also commonly called a pyramid scheme because the investors at the bottom are paying for the returns at the top. This model requires a constantly flow of new investors will always result in financial collapse over time.

“What if everyone took these same actions?” is a question sometimes called the

​​ universalization approach.

 
  • Student: Hanzel Wolff
  • Textbook: Law 421 Final Exam
  • Course: Business Law
 

Business Law Exam Concepts Study Guide

 

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