Government Regulation -- 2015

Yates v. United States   (U.S. Supreme Court)

Expansion of Sarbanes-Oxley Act

The NAM together with the U.S. Chamber filed an amicus brief urging the Supreme Court to review an Eleventh Circuit decision that broadly construed the Sarbanes-Oxley Act. In this case, the petitioner, Yates, was a commercial fishing boat captain who was convicted of destroying business records in a government investigation. After suspecting that Yates was catching undersized fish, federal officers instructed Yates to retain 72 fish. When the officers boarded the boat, they discovered that several of the fish had been thrown overboard. Yates was prosecuted under the Sarbanes-Oxley Act, which imposes criminal penalties against a person who knowingly destroys records, documents or tangible objects with intent to impede or obstruct and investigation. The Eleventh Circuit upheld the conviction, holding that the Sarbanes-Oxley Act applied to all forms of tangible evidence in any government investigation.

The NAM challenged the lower court’s ruling by explaining that Congress never intended the Sarbanes-Oxley act to apply to cases like this. Congress passed the act in response to an outbreak in corporate investment scandals such as Enron and WorldCom, hoping to prevent the destruction of corporate financial records during a government investigation. This objective arose from a compelling and narrow intention to protect investors. The NAM brief argues that a basic understanding of statutory interpretation indicates that the phrase “tangible object” refers in context to corporate record keeping devices such as papers, hard drives, or discs. The statute itself and Congress’ intent both illustrate that the Sarbanes-Oxley act was never intended to apply to activities beyond corporate record keeping.

Expanding the application of the Sarbanes-Oxley Act to cases like this will greatly broaden the reach of the Act beyond the intent of Congress. Further, it would potentially criminalize innocent and routine practices such as inventory management. Therefore, the consequences of the Eleventh Circuit’s ruling are far-reaching and potentially impact manufacturers of all kinds.

The Supreme agreed to hear the appeal, and on Feb. 25, 2015, overturned the lower court ruling 5-4. In a divided decision, a majority thought that the law should not be read to so broadly by prosecutors. Instead, it should be interpreted to criminalize only tangible objects that are used to record or store information, and not all tangible objects in the world.

Related Documents:
NAM brief  (July 3, 2014)


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