From Enron to Worldcom and Beyond: Life and Crime after Sarbanes-Oxley

In roughly two years since the corporate meltdown began, federal and state regulators have initiated criminal fraud investigations involving dozens of corporations, including Enron, WorldCom, Adelphia, HealthSouth, McKesson, and Qwest. To date, some ninety corporate owners, executives, and employees have been criminally charged, and the investigations are ongoing. It was against this backdrop that zeal for corporate governance reform gained unexpected momentum in Congress and resulted in the surprisingly quick enactment of the Sarbanes-Oxley Act. Although its principal purpose is to address systemic weaknesses in corporate governance structures, Sarbanes-Oxley also augments prosecutorial tools available in major fraud cases. Critics complain that Sarbanes-Oxley's criminal provisions are needlessly redundant, rely too heavily on enhanced criminal penalties to achieve their goals, and attach far too much importance to filling minor gaps in the coverage of existing laws. This article presents the alternative view that the Act's criminal provisions make significant strides toward piercing the veil of corporate silence. Using as its central focus the essential roles that whistleblowers and cooperating witnesses have played in recent corporate fraud investigations, the article evaluates key criminal provisions in Sarbanes-Oxley that extend new legal protections to whistleblowers and that are likely to provide powerful incentives for potential targets of fraud investigations to become cooperating witnesses. An appendix to the article tracks criminal charges brought against nearly ninety corporate officers and employees in some fifty major fraud prosecutions the Justice Department filed between March, 2002 - when it first charged Arthur Andersen with obstruction of justice - and August, 2003.