Summarize the case and answer the following questions:
1. Could SOX have prevented the Phar-Mor fraud? How? Which specific sections ofSOX?
2. Research the Waste Management scandal from the late 1990’s. Describe the scandal. Could SOX have prevented this scandal?
3. Research the Enron scandal from the early 2000’s. Describe the scandal. Could SOX have prevented this scandal?
The Case of Phar-Mor Inc.
Could SOX Have Prevented the Fraud?
By S. Lansing Williams
The Sarbanes-Oxley Act of 2002 (SOX) was an effort toincrease the confidence of investors after a number of high-profile corporate failures due to malfeasance on the part of corporate officers and poor internal controls. After the failures of Enron. WorldCom, and other large companies— which resulted in huge losses to investors—Senator Paul Sarbanes
(D-Md.) and Representative Michael Oxley (R-Ohio) coau- thored a bill that resulted in public companies improving the accu- racy of their financial reports. The law contains 11 major sec-
tions, including (Title I) Public Company Accounting Oversight Board, (Title II) Auditor Independence, (Title III) Corporate Responsibility. (Title FV) Enhanced Financial Disclosures. (Title V) Analy.st Conflicts of Interest, and (Title VI) Commission Resources and Authority. Titles VII, VIII, IX, X, and XI deal with sUidies and reports, corporate and criminal fraud account-
ability and white-collar crime penalties, corporate tax retums, and corporate fraud and accountability. While SOX came about as a direct result of the Enron melt-
down in 2001, followed by the WoridCom bankruptcy in 2002, these two companies were not the only failures that led to its passage. The 1992 bankruptcy of Phar-Mor Inc. cost its investors $500 million. Although the bankruptcy occurred 10 years
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