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Learning Goal: I’m working on a business law multi-part question and need an explanation and answer to help me learn.

Post 1 Sarbanes-Oxley Act

Regardless of size and industry, all companies should be subject to the Sarbanes-Oxley Act. This law is significant because it can help protect shareholders, employees, and customers from company fraud (Miller & Cross, 2014). If a company is not subject to this act, it may use accounting methods that will mislead other people or specific company constituencies. In addition to being lawful, this act also provides a framework for ethics within corporations. The Sarbanes-Oxley Act ensures that companies are transparent in their dealings with stockholders and stakeholders by requiring full disclosure of accurate financial reports and accurate communications with shareholders and investors.

According to the Discussion of the case, Shuebke was sued by Superior. She successfully defended negligence claims against her because she had conducted a review that is presumed to be conducted in good faith and conformed to generally accepted accounting principles. In the case of Regal, Shuebke was presented with incomplete information. The only partial audit available to Shuebke was the accounting records of Regal. These documents were not reliable or verifiable and could not be relied upon for any purpose. In this case, Shuebke cannot be held liable for negligently failing to detect material omissions in the partial audit.

No,” Chase cannot be liable to Superior. Chase did not engage in conduct that a competent accountant would know practically inevitable to result in injury to others. If he had been negligent, he also would have been liable for punitive damages.

The Regal case offers an excellent example of a complication that may arise when an auditor shares information regarding the audit with another party, such as the original auditor or management. The Federal Reserve Board’s Statement on Auditing Standards No. 70 (SAS 70) contains rules and regulations concerning the requirements for communications between auditors and parties other than the auditor’s client. However, these requirements must be strictly adhered to. For instance, a failure to abide by the SAS 70 can result in liability resulting from material noncompliance by an auditor with its obligations to serve as both accountant and auditor. It also can result in liability under federal and state securities laws, such as Section 10(b) of the Securities Exchange Act of 1934, which prohibits false or misleading statements made to the public in connection with the purchase or sale of securities. In addition, many states require auditors to prepare an audit report that is free from conflict of interest. Violations can subject an auditor to liability for professional negligence and vicarious liability for fraud.

In the above case, Chase participated in a scheme to defraud the government by helping Regal prepare its false tax return and underreport its taxable income through overstated inventories on Regal’s general ledger. The defendants had falsely represented Regal’s books to Superior by failing to disclose that the inventories were overstated. For those actions, chase should be liable for a penalty of $50,000.

Reference

Miller, R. L., & Cross, F. B. (2014). Business law: Text and cases. Cengage Learning.

Post 2 Admin Law

The ALJ should have at least three judges. The argument presented is that there should always be at least three administrative law judges in any hearing to ensure the impartiality and fairness of their decisions (Miller, 2019). Administrative law judges are “required to remove their personal opinions from the decision-making process.” To avoid bias in a hearing, there has to be a balance of opinions. However, an administrative law judge can both decide and convict (as part of the jury); it needs all three ALJs present for this validity.

The SEC is a sovereign agency with specific characteristics that set it apart from other agencies. It is an independent regulatory agency headed by five commissioners, each serving a specific term. The SEC’s practices are governed by the Administrative Procedure Act (APA) and other related laws. Under § 3(a)(1) of the APA, every rule or order promulgated by any agency shall be made on the record after the opportunity for an agency hearing [which] shall include a reasonable opportunity for interested persons to submit data, views, or arguments. Courts have ruled that this statute does not apply to actions taken at open committee meetings or certain internal agencies’ internal decisions (Miller, 2019). Accordingly, only informal or “ad hoc” rulemaking conducted in writing is subject to review under the APA.

The APA requires that an administrative agency’s rules be “arbitrary and capricious” if they are not the result of a reasoned decision-making process (Miller, 2019). The agency must engage in notice and comment rulemaking if it wishes to change its rules significantly. In this case, the SEC did not engage in a thorough and careful consideration of whether it had ever had the authority to pursue persons for insider trading regardless of whether they profit from the transaction. On the contrary, it has made clear that it wants to pursue this policy without further consideration because its prior understanding was contrary to its current view.

In light of these events, this court should deference to the SEC’s interpretation despite Chevron’s argument for why it should not be given deference. Courts must give deference to interpretations made by agencies unless they are arbitrary and capricious under a certain level of scrutiny.

First, it would be improper for the SEC to change its interpretation without following the APA’s rulemaking procedures. Second, if the court determined that such a new rule was merely an “interpretative” change with no substantive effect on the SEC’s powers, then for the SEC to make this kind of change, it would have needed to follow APA procedures because it contradicted its old interpretation.

Reference

Miller, R. L. (2019). Business law Today, Comprehensive edition: Text and cases. Cengage Learning.

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