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SEC and SOX Compliance – What happens if I don’t comply, what are the penalties?

SEC and SOX Compliance – What happens if I don’t comply, what are the penalties?

Image Credit – Rob Crawley

The Securities Exchange Commission was created by congress to protect investors and regulate the market. Many acts have been put in place to do such things, including the Sarbanes-Oxley Act, or SOX. The intent of the SOX act is to protect investors from fraudulent practices made by companies. This came at the heels of scandals such as Enron and WorldCom.

This institution and act are so important that the penalties  must be taken seriously. There are multiple codes to the laws and breaking them has different consequences.

To begin with, the SOX act requires that a company keep records of all paperwork relating to an audit for 5 years. Another requirement set forth by the Securities Exchange Commission is that every CEO of a company must disclose the company’s current financial status as a result of their operations. Failure to comply with the requirements of keeping records can result in penalties and even jail time; destroying documents con result in  a 10-year felony.

As mentioned above, the penalties differ based on what parts of the SOX act are  violated. Compliance penalties range from loss of exchange listing to fines upwards of millions of dollars.

CEOs and CFOs are also held accountable and can incur hefty penalties for the company’s actions, especially if they disclose inaccurate information. If the executive was not aware of the company’s wrongdoing, he or she still could face a one million dollar fine and up to ten years imprisonment. If the records are knowingly reported incorrectly, the CEO or CFO can be fined up to five million dollars and face up to 20 years in prison.

It is important to understand that this applies to all public companies in the United States that have registered equity or debt with the Securities Exchange Commission.

If you have any questions, Stock Connections can help. We specialize in SEC and SOX compliance. Give us a call!

Stock Connections specializes in working with San Francisco Bay Area companies that are involved in mergers & acquisitions, are raising capital, or creating stock option or other equity plans. We help start-up, private and public firms become – and remain – SEC-compliant. Stock Connections’ services are designed to help both start-ups and established firms comply with SEC and other regulations in their equity compensation programs. If you or anyone you know is looking to get involved with any of the above, we encourage you to contact us today!

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