Academic journal article St. John's Law Review

United States V. Simon and the New Certification Provisions

Academic journal article St. John's Law Review

United States V. Simon and the New Certification Provisions

Article excerpt

INTRODUCTION

The Sarbanes-Oxley Act of 2002(1) (the "Act") contains two well-publicized provisions requiring that Chief Executive Officers (CEO's) and Chief Financial Officers (CFO's) of public companies certify their companies' Securities and Exchange Commission (SEC) filings. Section 906 provides that each periodic report filed by an issuer with the SEC shall be accompanied by a written statement by the CEO and the CFO certifying that the report "fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")2 and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer."3 Section 302 mandates that the SEC issue rules requiring that the CEO and CFO of each company that files reports under section 13(a) or 15(d) shall certify a number of facts, including-- in section 302(a)(3)-that based on the officer's knowledge, "the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report."4

Now that the SEC has issued rules that enable section 302 to go into effect,5 the principal difference between the section 906 IMAGE FORMULA4

certification and the section 302(a)(3) certification is the fact that the section 906 certification applies not only to the financial statements and other financial information contained in the report, but to all the information presented in the report.6 More interesting is what sections 906 and 302(a)(3) have in common: the fact that false statements in either certification can be prosecuted criminally,7 and the fact that they share a standardless requirement of "fair presentation" that is not limited to the traditional benchmark that financial statements fairly present the financial affairs of the issuer "in accordance with generally accepted accounting principles" (GAAP).8

Was Congress's omission of any reference to GAAP in the new certification provisions an oversight? According to the SEC, it was quite intentional. At page 7 of its Certification Release, the Commission stated:

The certification statement [in (section) 302(a)(3)] regarding fair presentation of financial statements and other financial information is not limited to a representation that the financial statements and other financial information have been presented in accordance with "generally accepted accounting principles" and is not otherwise limited by reference to generally accepted accounting principles. We believe that Congress intended this statement to provide assurances that the financial information disclosed in a report, viewed in its entirety, meets a standard of overall material accuracy and completeness that is broader than financial reporting requirements under generally accepted accounting principles. In our view, a "fair presentation" of an issuer's financial condition, results of operations and cash flows encompasses the selection of appropriate accounting policies, proper application of appropriate accounting policies, disclosure of financial information that is informative and reasonably reflects the underlying transactions and events and the inclusion of any additional disclosure necessary to provide investors with a IMAGE FORMULA7

materially accurate and complete picture of an issuer's financial condition, results of operations and cash flows.9

In a supporting footnote to the passage quoted above, the SEC explained that "[p]resenting financial information in conformity with generally accepted accounting principles may not necessarily satisfy obligations under the antifraud provisions of the federal securities laws."10 The precedents cited for this proposition are United States v. …

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