Project and Regulations

Document Type:Research Paper

Subject Area:Finance

Document 1

Unethical practices may arise due to competition in the market. Most of the businesses are faced with stiff competition which may hinder them from disclosing some material facts. Investors and general public should know what is prevailing in the market for them to make informed decisions (Rezaee & Riley, 2010). The lawmakers have a role to play in passing laws and regulations to shape the business environment. The enactment of regulations is always informed by prevailing market conditions. There are six different kinds of institutional investors. They include: insurance firms, pension funds, mutual funds, endowment funds, hedge funds and commercial banks (Bratton & McCahery, 2015). Favoring the institutional investors over individual investors gave the former an added advantage to win out the other market players.

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The added advantage emanates from the ability of the institutional investors to gather knowledge and information regarding different investment portfolios owing to the amount of resources at their disposal (Bratton & McCahery, 2015). Individual investors have limited resources to obtain the same information and knowledge. The commission saw it right to boost the confidence of investors in the market. The selective disclosure of information to selected financial analyst created room for conflicts o interest. The capital markets had some stock managers who would release information to those analysts who encouraged investors to buy their stocks by releasing positive statements and forecasts (Roberts, 2016). Analysts that provided contrasting forecast and critiques on the stocks were segregated. Reg FD would prevent release of private information to such investors.

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• Violating the act does not interfere with reselling of options in the securities market and the company involved can continue with short form registration (Roberts, 2016). The success of Regulation Fair Disclosure Reg FD was successful in creating a level play field for all investors. More information is released to the public through inclusive methods such as press releases (Rezaee & Riley, 2010). Improvement of the amount and the quality of financial information released to private and institutional investors became possible through Regulation Fair Disclosure. The amount of information released before and after the regulation was passed is the same. They are ready to increase confidence of investors in the system. Flouting Regulation Fair Disclosure Some companies are flouting the regulation passed by the commission.

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Imclone, Martha Stewart, Siebel systems and Flowserve are some of those companies. Flowserve, a company based in Texas, was sued for violation of Reg FD a case that was settled on the 24th day of March 2005 (Morgan, 2007). The claims of violation of the law followed a meeting held between four brokerage firms and executives of the company. The company’s Chief Finance Officer conducted a selective meeting with institutional investors in 2003 (Morgan, 2007). This was six months after the first case was settled. The CFO remarks during the meeting were positive and they did not agree with negative statements said during a public announcement on the future of the business. The company denied the charges at a New York federal court. The court ruled against the statements being material and non-public citing the CEO who had released similar statements publicly.

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The public scandals led to the investor’s quest of reviewing accounting regulations and standards. SOX stopped companies from advancing loans to the executive (Wagner & Dittmar, 2006). It also protected jobs of the employees who reveal acts of fraud in their companies. In the past, Chief Executive Officers were not questioned for erroneous financial statements but SOX put a responsibility on the CEOs to be held accountable for mistakes noted (Fletcher, Plette & Bazan, 2008). The 1933 Securities Act only placed responsibility of fraud on the corporations. The management is required to create a structure for internal control of accounts and practices (Wagner & Dittmar, 2006). The management and the editor should comment on the effectiveness of the accounting practices. • Section 802: The section outlines the charges anyone who interferes with investigations launched by the US agency.

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There are penalties for destroying documents that should assist in investigations (Fletcher, Plette & Bazan, 2008). • Section 906: It highlights the need to penalize executives and auditors who are non-compliant with the law (Wagner & Dittmar, 2006). Errors and misstatements can be noticed quickly. Restating financials is less necessary. Adhering/Flouting to Sarbanes-Oxley Act A good number of companies are adhering to SOX. For example, BlackRock had to review its policies and practices. The investment firm revised its job requirements according to SOX in order to make internal control of business processes more effective (Wagner & Dittmar, 2006). The courts should support SEC in enforcing the regulations. As the world transforms into the new businesses that never existed in the past decade, the government should take up its role to pass regulations and laws to protect its citizens from impended exploitation.

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