NOWHERE TO RUN, NOWHERE TO HIDE: THE IMPACT OF SARBANES-OXLEY ON SECURITIES ARBITRATION

St. John's Law Review, Winter 2007 by Pierre-Louis, Lydie Nadia Cabrera

There are, however, exceptions to discharge. Typically, discharge is not allowed when the debtor has been proved guilty of certain forms of normatively repugnant conduct,71 such as fraud or willful and malicious injury.72 Surprisingly, there is relatively little legislative explanation of these exceptions. Unsurprisingly, the result is considerable confusion, controversy, and litigation.73

D. The Policy Underlying Dischargeability

Capitalism without bankruptcy is like Christianity without hell.

-Frank Borman74

The basic policies underlying the intentional wrongdoing exceptions to discharge do not explain the strange results. Although courts have often stated that Congress, in providing a discharge, did not intend to benefit dishonest debtors, this conclusory assertion is unaccompanied by detailed explanation.75 Some authorities suggest that discharge is denied to dishonest debtors to punish them.76 Presumably the purpose of this penalty is deterrence; a particular debtor will be deterred from repeating her fraud and other prospective debtors will be deterred from committing fraud altogether.77

Others contend that debts fraudulently incurred are nondischargeable to prevent particular creditors from being victimized.78 A creditor is assumed to have knowingly accepted all ordinary business risks; a debtor's intentional wrong somehow falls outside the pale of a creditor's legitimate expectations. All other things being equal, creditors so wronged are purportedly entitled to our sympathy and protection, and the wrongdoing debtors are undeserving, as to such debts, of the benefit of a bankruptcy discharge. Thus, the non-dischargeability rule is based primarily on the debtor's being guilty of morally offensive conduct.

III. SARBANES-OXLEY ACT AMENDS THE BANKRUPTCY CODE

The laws sometimes sleep, but never die.(TM)

A. The Raison D'être for Sarbanes-Oxley

The SEC adopted the Sarbanes-Oxley Act in an effort to avoid the WorldCom, Enron, and Arthur Andersen scenarios and to reassure investors that "abuses of the system are not, and will not be allowed to become, the norm in American business."80 Sarbanes-Oxley is Congress's response to the highly-publicized business scandals, pension losses, earnings restatements, and bankruptcies of big corporations. President George W. Bush signed Sarbanes-Oxley into law on July 30, 2002, and called it "the most far-reaching reform of American business practices since the time of Franklin Delano Roosevelt."81 Sarbanes-Oxley makes any SEC registered company liable for violating SarbanesOxley. Some of the most significant provisions of Sarbanes-Oxley are prohibitions on loans to executive officers, requirements on audit committee standards,82 requirements for more detailed financial information in SEC filings,83 guidelines for the relationship between an issuer and an auditor,84 requirements for disclosing the company's code of ethics,85 requirements for lawyers,86 provisions applying to whistleblowers,87 and sanctions for people who violate Sarbanes-Oxley.88