Sarbanes-Oxley for Entrepreneurs

The Sarbanes-Oxley Act: Title VI

Written by Bennet Grill for Gaebler Ventures

This article focuses on the Title VI of the Sarbanes-Oxley Act, also known as the Commission Resources and Authority. In this section of the Act, some common penny stock scams are specifically addressed.

The sixth title of the Sarbanes-Oxley Act outlines the provisions made available to support the commission and to enforce its authority.

Appropriations are described in three main categories-- one for compensation, including all salaries and benefits, for members of the commission, another for all information technology needs, especially for the enhanced security measures necessary after September 11th, and a third section describing resources dedicated for the addition of "qualified professionals" to aid in the oversight, regulatory, and disciplinary activities outlined in the previous titles of the Sarbanes-Oxley Act.

Such "qualified professionals" could include lawyers, accountants, or financial professionals who could provide an unbiased assessment of a company.

The next section of the sixth title describes the authority of the commission to censure or deny any person the privilege of appearing before the commission. The commission may censure a person if they are found to have willfully violated a securities law or have demonstrated improper professional conduct, which is defined as conduct deemed to be reckless, negligent, and in violation of professional standards.

Also included in this title is the authority granted to federal courts to bar the granting of penny stock. Penny stocks compose what is called the microcap sector of securities and represent companies traded outside one of the major exchanges.

A penny stock is traditionally a stock that is traded at under five dollars--due to the typically low volume of trading and concentration of ownership a penny stock's price can fluctuate much more violently than that of a blue-chip company. Such characteristics make the penny stock an attractive target for those looking to artificially manipulate the price of shares and thus commit securities fraud.

Historically fraud involving penny stocks has been characterized as either a "pump and dump" or a "short and distort" scheme. In the former, a large number of shares of a penny stock are purchased and false (but positive) rumors are spread to artificially inflate the price of the stock at which point the original investor sells all his shares at a large profit.

Short and distort is a method where an investor shorts a stock and then spreads negative rumors and false news reports about the company in order to deflate its price, at which point the short contract is redeemed and the investor draws a profit while other investors suffer. Title six of the Sarbanes-Oxley Act gives federal courts the authority to ban any person from participating in the offering of a penny stock if they have reason to believe the person has engaged in any misconduct.

With this safeguard in place, potential penny stock fraud is prevented while a full investigation may be performed of the person under review.

The Sarbanes-Oxley Series -- Learn More About Sarbox

The Sarbanes-Oxley Act: An Introduction
The Sarbanes-Oxley Act: Title I
The Sarbanes-Oxley Act: Title II
The Sarbanes-Oxley Act: Title III—Audit Committees
The Sarbanes-Oxley Act: Title III—Blackout Periods
The Sarbanes-Oxley Act: Title IV
The Sarbanes-Oxley Act: Title V
The Sarbanes-Oxley Act: Title VI
The Sarbanes-Oxley Act: Title VII—Accounting Firms
The Sarbanes-Oxley Act: Title VII— Past Violators
The Sarbanes-Oxley Act: Title VIII
The Sarbanes-Oxley Act: Title IX-XI

Bennet Grill is a writer who has a passion for business and finance. He is currently an Economics major at Duke University in North Carolina.

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