Another accounting scandal has occurred, despite the existence of the Sarbanes-Oxley Act which was signed into law by Bush to “prevent the next Enron.” Commodities trading firm Refco is now bankrupt, and in the process of being de-listed from the New York Stock Exchange. Refco had just launched its Initial Public Offering of shares in August. Statists are claiming that Refco occurred due to insufficient regulation. However, the SOX accounting law and a myriad of other rules and restrictions are designed to prevent just this kind of fraud.
Under the Securities and Exchange Act of 1933, all prospective issuers must register with the SEC by filing a Form S-1 and a prospectus. Registration with the SEC is supposed to ensure full and fair disclosure to potential investors of all material facts. The agency is supposed to issue a stop order prohibiting the sale of any securities in which the registration has omissions or misrepresentations. Clearly, the SEC failed to scrutinize Refco for related-party transactions and other signs of possible fraud. Former SEC chief accountant Lynn Turner admitted in a WSJ report that the agency's corporation-finance division will almost never detect fraud in company filings. A typical SEC review consists of staff perusing the prospectus and asking the company for clarifications.
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