Source: Mark Strauch, Business Engine
Mark Strauch, chief operating officer of BPO firm Business Engine says the US government's failure to secure a conviction in its first prosecution under the Sarbanes-Oxley corporate disclosure law marks a serious setback to efforts to enforce compliance with the regulations.
The jury in the trial of Richard Scrushy, former CEO of healthcare giant HealthSouth Corp, has reached a not guilty verdict on the question of Scrushy's involvement in a crippling $2.7bn fraud. Scrushy is the first person to be tried under the Sarbanes-Oxley (SOX) corporate reporting law, which requires CEOs of publicly traded companies to certify personally their companies' financial statements.
Five other financial directors from HealthSouth were also indicted on similar charges and, whilst appearing as witnesses for the government, alleged that Scrushy was fully aware of the fraud and helped to falsify financial records in line with Wall Street expectations. However, analysts have predicted throughout the trial that the 'wilful intent' aspect of the new laws would ultimately be difficult to prove in court.
The outcome of the Scrushy case is a blow against the effectiveness of SOX. The law wants directors to be held responsible for the signing off of accounts, but while doubt can be raised over defendants' 'wilful intent' to defraud, there will be no convictions - and no teeth to these regulations.
UK company directors are also likely to see this law as lacking in conviction. While the implementation of SOX in the UK is still 12 months away, this case should have acted as further encouragement for companies to implement transparent, top-down reporting systems in order to protect themselves against such scandals. However, the Scrushy verdict will leave them wondering if it is worth the bother.