In the early 2000s, a series of corporate accounting scandals rocked the financial markets—Enron, WorldCom, Tyco, Adelphia, and others. It was an open secret that some corporations were engaging in deceptive or downright fraudulent accounting practices. In 2002, Congress decided to do something about it and passed what was known as the Sarbanes-Oxley Act (SOX) in July of that year. The law imposed a set of strict internal accounting controls and, most famously, imposed criminal penalties on CEOs who knowingly signed off on quarterly earnings reports that were found to be fraudulent in any way.
Just over 23 years later, the law is considered a success. Since its passage, there have basically been no major corporate accounting scandals (don't confuse accounting scandals with insolvencies). The bill's authors, Sen. Paul Sarbanes (D–Md.) and Rep. Mike Oxley (R–Ohio), have both since passed away—perhaps they would be pleased to see that their legislation has restored Americans' trust in financial markets. What they likely never realized is the massive unintended consequences caused by their law, which we are still living with to this day—consequences more severe than if existing laws and self-correcting market forces were used to deal with the deceptive accounting that was occurring.
