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8 - The Future of Securities Fraud Regulation

Published online by Cambridge University Press:  14 July 2022

James J. Park
Affiliation:
University of California, Los Angeles
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Summary

The thesis of this book is that securities fraud became a threat to the integrity of public companies as markets increasingly valued them based on projections of their future earnings. It became important for companies to consistently validate prior forecasts of their profitability to maintain their stock price. This created a systemic incentive for corporate managers to manipulate market perceptions of their company’s earnings potential. The Sarbanes–Oxley Act of 2002 (Sarbanes–Oxley) was an attempt to address this incentive by requiring all public companies to invest in measures that prevent financial misstatements. The law governing Rule 10b-5 developed as private investors and the SEC increasingly scrutinized whether misleading corporate narratives of the future were motivated by fraudulent intent.

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The Valuation Treadmill
How Securities Fraud Threatens the Integrity of Public Companies
, pp. 129 - 146
Publisher: Cambridge University Press
Print publication year: 2022

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