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Government Regulation and Corporate America

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Unit 3 Research Paper
Government Regulation and Corporate America
Kaplan University Online

All companies in the United States have to abide by many rules and regulations set in place by our government. It seems as if there are so many if you are just learning about them but once you know and understand them, they all make sense and seem logical. If we had less regulation, there would be more people committing fraud and getting away with it. There are plenty of regulations in place right now and no more are needed unless people are continuing to abuse the system and new ones need put into place. As long as everyone continues to do their job properly, there is no need for any more government regulation.
Securities Acts of 1933 and 1934
The Securities Acts of 1933 and 1934 ensure that companies are not misleading in their financial statements that investors base their opinions on. If an investor sees any financial statement to a company, and believes they are in good shape and that they should invest in that company, the company is held liable for any loss the incur.
The Securities Act of 1933 requires that before selling securities publicly, a company must register them first. Companies must go through the Securities Exchange Commission and file a registration statement. When they file, they must include their audited financial statements (Beatty & Samuelson, 2010). After this is done, a company may offer their securities on a public market for investors which may include doing an initial public offering (Louwers, Ramsay, Sinason, Strawser, & Thibodeau, 2011).
The Securities Act of 1934 requires companies that are trading publicly to file an annual report that includes their audited financial statements and quarterly reports (Beatty & Samuelson, 2010). These companies are also required to have their financial statements audited by independent accountants (Stice & Stice, 2012). This ensures that all investors and creditors can be sure they are basing their decisions on reliable information.
In 1960, Bernie Madoff started Bernard L. Madoff Investment Securities, LLC. His company was the 23rd largest market maker on Nasdaq and handled about 50 million shares daily (Panzer, 2008). In 2008, Bernie Madoff was arrested because of securities fraud after being turned in by his sons. Part of his business was a Ponzi scheme and he had lost $50 billion dollars of investors’ money. An SEC press release stated the following:
The Securities and Exchange Commission today (December 11, 2008) charged Bernard L. Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud for a multi-billion dollar Ponzi scheme that he perpetrated on advisory clients of his firm. The SEC is seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm.
The SEC's complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was "finished," that he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion (Panzer, 2008).
Bernie Madoff used new investors’ money to pay off old investors’ and so on. He was eventually sentenced to 150 years in prison at the age of 70 in 2008. The fraud he committed violated provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940 (Panzer, 2008).

The Foreign Corrupt Practices Act of 1977 In 1977, the Foreign Corrupt Practices was enacted. This act made it illegal for people and entities to make payments to foreign government officials to obtain or retain a business (“Foreign corrupt practices act,” n.d.). It also prohibits the use of interstate commerce for any offer, payment, promise, or authorization if the person knows that it will be used to influence a foreign official (“Foreign corrupt practices act,” n.d.). The Foreign Corrupt Practices Act was enabled shortly after the Watergate Scandal. It all started with a break-in that happened as Richard Nixon was running for re-election in 1972 (Gill, n.d.). Seven men were indicted and all seven were directly or indirectly employed by Richard Nixon’s Committee to Re-Elect the President (Gill, n.d.). This prompted investigations that revealed it was only one of multiple illegal activities that Nixon’s staff had done. After many people were fired or voluntarily resigned, the spotlight was turned to Nixon himself. Two years after the initial break in at the Democratic National Committee headquarters, Nixon was being forced to hand over tapes that would further implicate himself and his staff. He handed over the tapes and, ten days later, resigned (Gill, n.d.). All of this happened before the Foreign Corrupt Practices Act of 1977 but was very fresh in everyone’s mind when the act was adopted. More recently, in late 2011, Wal-Mart disclosed that they were reviewing their policies and procedures dealing with the global anticorruption compliance program (Henning, 2012). Wal-Mart de Mexico supposedly used $24 million as bribes to secure permits and approvals to build new stores (Henning, 2012). Wal-Mart voluntarily brought these payments to light by conducting their own investigation, starting in 2011. Since they disclosed this information in 2011, it had been six years since the payments had been made in Mexico. The Foreign Corrupt Practices Act statute of limitation is five years. The only way to get around the five year statute is to charge Wal-Mart with conspiracy. To do this, the government must prove that at one point in the past five years, Wal-Mart executives took steps to cover up the payments (Henning, 2012). If Wal-Mart was filing their financial statements annually, as required, there is sure to be a cover-up somewhere along the line. They were probably not recorded properly and even then, Wal-Mart can be charged with violating the accounting provisions of federal securities law.
Sarbanes Oxley Act
The Sarbanes-Oxley Act was introduced in 2002 and was named after Senator Paul Sarbanes and Representative Michael Oxley (“The sarbanes-oxley act,” 2006). It is required by all companies, no matter how big or small, and is arranged into eleven titles (“The sarbanes-oxley act,” 2006).
Under Title III of the Sarbanes-Oxley Act is one of the more pertinent parts. Section 302 states that:
• The signing officers have reviewed the report
• The report does not contain any material untrue statements or material omission or be considered misleading
• The financial statements and related information fairly present the financial condition and the results in all material respects
• The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings
• A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities
• Any significant changes in internal controls or related factors that could have a negative impact on the internal controls (“The Sarbanes-oxley act,” 2006). There are three parts of Title IV of the Sarbanes-Oxley Act that are more pertinent. They are Section 401, 404, and 409. Section 401 states that the financial statements of a company must be accurate and correct. Section 404 states that companies are required to include the scope and adequacy of their internal control structure. This also assesses the effectiveness of the internal control procedures. Section 409 states that a company must disclose information to the public about any changes in their financial condition or operations (“The Sarbanes-oxley act,” 2006). The last section that is most pertinent is Section 802 of Title VIII of the Sarbanes-Oxley Act. Section 802 states:
This section imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. This section also imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and willfully violates the requirements of maintenance of all audit or review papers for a period of 5 years (“The Sarbanes-oxley act,” 2006). One of the major scandals that would deal with the Sarbanes-Oxley Act of 2002 is Enron. Enron was a major corporation that made tons of revenue and it seemed as if the company was doing fine. However, when they had to reveal that they had been “fudging” the books, everyone found out that they were in terrible shape. The executives at Enron were selling their shares of stock while leading the public to believe that everything was fine. The public was still buying more and more shares (Gutman, 2002). The executives also froze the employees’ pension plans. These plans had share of the stock which were falling price drastically and became worthless to the employees (Gutman, 2002). Arthur Anderson Inc. was Enron’s accounting firm. They shredded files and deleted computer files covering up the information used to pass Enron’s accounting process and books
(Gutman, 2002). Enron executives and Arthur Anderson Inc. were indicted and charged for various things.
I do believe that there is enough government regulation in the United States but that doesn’t mean that someday we will need more. People are getting smarter about how they are stealing money and working around loopholes in the system. The smarter people get, the more in depth the laws need to be.

Beatty, J., & Samuelson, S. (2010). Introduction to business law. Mason, OH: South-Western Cengage Learning.
Gill, K. (n.d.). What was the Watergate scandal? Retrieved April 30, 2012, from
Gutman, H. (2002). Enron scandal: the long, winding trail. Retrieved April 30, 2012, from
Louwers, T., Ramsay, R., Sinason, D., Strawser, J., & Thibodeau, J. (2011). Auditing & assurance services. New York: McGraw-Hill.
Panzer, M. (2008). Madoff scandal: ‘biggest story of the year’. Retrieved April 29, 2012, from
Henning, P. (2012). Weighing the legal ramifications of the wal-mart bribery case. Retrieved May 12, 2012, from
Stice, E., & Stice, J. (2012). Intermediate accounting. Mason, OH: South-Western Cengage Learning.
The sarbanes-oxley act. (2006). Retrieved April 29, 2012, from
The United States Department of Justice. (n.d.). Foreign corrupt practices act. Retrieved April 29, 2012, from

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