The Sarbanes Oxley Act (“Enron Law”) Led To Companies Staying Private Longer

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The Sarbanes Oxley Act, signed into law in July 2002, had a significant impact on companies. It made IPOing and being a public company more difficult, leading to companies staying private for longer periods of time. The Act included various measures such as requiring top management to certify the accuracy of financial information, imposing severe penalties for fraud, restricting tampering with or destroying evidence, mandating more independence for external auditors, and increasing required disclosures for public companies. The effectiveness of the Sarbanes Oxley Act remains to be seen, as its impact will only be determined during the next market downturn. However, it is observed that fraud is now more likely to occur in the private market than the public market, as seen in cases like Theranos, FTX, and within the crypto industry.

The FTX fraud has dominated headlines now for weeks, during which we’ve debated if and how Acquired could uniquely add to the conversation. Then we realized there was an angle so perfect that we had to drop everything and enter Acquired research overdrive: Enron. Travel back with us to the granddaddy fraud of them all, 2001’s then-largest bankruptcy in US history and the impetus for the famous Sarbanes-Oxley Act. So much of Enron’s history parallels FTX that the uncanniness is almost unbelievable — right down to the same CEO running the two bankruptcies. Sit back and enjoy this crazy tale of villainy, greed, and the nature of humans and money. Maybe just don’t take notes on this one…

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‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.