Larry Ribstein wrote the book on disrespecting SOX. The Sarbanes-Oxley Debacle: What We've Learned; How to Fix It, coauthored with Henry Butler, is due out this summer from the conservative American Enterprise Institute Press. (Ribstein is a law professor at the University of Illinois; Butler is an economics professor at Chapman University.)
Name an argument in favor of Sarbanes-Oxley, and Ribstein has an answer. Where some critics of the law start by asking if the costs are worth the benefits, he goes further. "Does it even have benefits?" he asks. "What would a world without SOX look like? Would it have a lot more fraud? There's no reason to think that's the case."
What about the rising tide of restatements? "Section 404 is intended to keep the mistakes from happening in the first place, so maybe the restatements are evidence SOX is not working," he says.
Ribstein is an ardent free-marketeer who believes that investors and existing securities laws would force companies in a post-Enron world to monitor adequately for fraud. "Stock prices would reflect procedures, including SOX-like procedures, used by given companies," he says.
He is careful when asked if any sort of regulatory remedy was necessary as the bubble died and scandals loomed. "It would be academic hubris to say no," Ribstein says. "But it's a question that really wasn't addressed by Congress. The history of SOX is a history of panic. The debates were of extremely low quality, and Congress never really gave serious consideration to more moderate laws that might have been more cost effective."
Ribstein acknowledges that repeal of the law seems unlikely, although he does think its teeth may be dulled by reforms for small companies and foreign firms. And he holds out hope that a lawsuit filed earlier this year by a group called the Free Enterprise Fund (advisors include Clinton-era cigar aficionado Ken Starr) could get the Public Company Accounting Oversight Board established under SOX declared unconstitutional. "Then the act itself could be declared invalid," Ribstein says. For the first time during our interview, he sounds cheerful.
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