Ethics And Legislation

Unfortunately, most legislation is the result if unethical behavior. As part of the Sarbanes-Oxley Act, the SEC passed Rule 13a-14 that said CEOs and CFOs are required to sign and attest that the financial statements filed with the SEC do not include material misstatements or omissions. In 2013, a judge found that the CEO and CFO of Basin Water were not liable for sham transactions since they were not directly involved in the transactions. The 9th U.S. Circuit Court of Appeals recently overturned this decision and stated that "a mere signature is not enough for compliance" and is allowing the SEC to sue for disgorgement of gains. The recent ruling makes it even more important for CEOs and CFOs to run ethical companies.