The recent resignations of Mercury Interactive's Chairman/CEO, CFO and General Counsel stemming from their participation in shenanigans related to pricing of stock options and loans to officers may stoke the complaint that the Sarbanes-Oxley Act is ineffective. Ventana Research believes the situation illustrates both the strengths and weaknesses of the act in preventing fraud. We have never believed Sarbanes-Oxley could prevent all acts of fraud, particularly those stemming from concerted efforts by senior executives. On the other hand, most of what happened at Mercury Interactive predated the act; in 2002 the company implemented controls that would have been required to comply with SOX Section 404 and stopped the manipulation of options pricing. While preventing all high-level frauds is impossible, each that is uncovered adds to the list of material risk factors that companies and their auditors must address in establishing controls. In Ventana Research's opinion, these controls are likely to force board members, particularly those on the audit committee, to play more active roles in governance than they typically have. That would not be a bad thing.
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