November 28, 2002
Mr. Jonathan G. Katz, Secretary
Dear Mr. Katz:
Subject: File # S7-40-02
Comments on Proposed Disclosure Rules for Section 407 of the Sarbanes-Oxley Act of 2002
I write as an individual investor. I form part of an investment discussion group made up of highly intelligent and well-educated individuals many of whom have invested a substantial amount of money and/or a large percentage of their retirement funds in the stock market. In order to obtain various opinions, I posed several of these issues to some of these stock/investing online forums at The Motley Fool and CBSMarketWatch.
The topics that I submitted for comment from the Sarbanes-Oxley Act were:
While the comments revealed that indeed confidence in the numbers is a major issue, none of the above mentioned proposals carried much weight as far as regaining investor confidence in the financial markets. In fact, concern for Conflict of Interest and Integrity issues were by far the major issues of those individuals that responded.
After reading these comments, it is my concern that the proposed rules regarding the Sarbanes-Oxley Act of 2002 would not fulfill the objective as stated under Section VI-B "The proposals are intended to enhance investor confidence in the fairness and integrity of the securities markets by increasing transparency regarding the expertise of the audit committee, the ethics codes that apply to companies' principal executive officer and senior financial officers, and the adequacy of a company's internal controls and procedures for financial reporting."
Will these rules really benefit the individual investor or will the transparency end up feeding the media more food for sensationalism without a purpose? Will these rules inhibit the innovation and risk taking that is inherent in managing a company? Are some of these measures so extreme that ethical persons will be unwilling to take on these responsibilities thereby leaving the job to the more unscrupulous? Is there risk in implementing these rules? Some in Corporate Management think there is. Is the benefit really worth the risk? Are not the success of the company and the success of the shareholder one and the same? These are the questions that still remain. The goal is to protect and help the shareholders not hurt them.
To reiterate a previous point, integrity is not legislated it is proven. Trust in corporate management, Trust in the audit process, Trust in analyst's recommendations and Trust in media reporting are all factors in driving stock market valuations and it is essential that they all maintain the utmost integrity and remain separate from the conflicts of interest. That along with strict enforcement of the security laws already in existence, in time will bring back the confidence of the Individual Investor. It is in the best long-term interest of Corporate Management, Accountants, Analysts and The Media to work together to bring back the confidence of the Individual Investor. Then all will be able to benefit in a much more equitable fashion.