THE 10TH ANNIVERSARY OF THE SARBANES-OXLEY ACT HEARING BEFORE THE SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION JULY 26, 2012 Printed for the use of the Committee on Financial Services Serial No. 112–152 ( U.S. GOVERNMENT PRINTING OFFICE 76–123 PDF WASHINGTON : 2013 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\76123.TXT TERRI HOUSE COMMITTEE ON FINANCIAL SERVICES SPENCER BACHUS, Alabama, Chairman JEB HENSARLING, Texas, Vice Chairman BARNEY FRANK, Massachusetts, Ranking PETER T. KING, New York Member EDWARD R. ROYCE, California MAXINE WATERS, California FRANK D. LUCAS, Oklahoma CAROLYN B. MALONEY, New York RON PAUL, Texas LUIS V. GUTIERREZ, Illinois DONALD A. MANZULLO, Illinois NYDIA M. VELA´ ZQUEZ, New York WALTER B. JONES, North Carolina MELVIN L. WATT, North Carolina JUDY BIGGERT, Illinois GARY L. ACKERMAN, New York GARY G. MILLER, California BRAD SHERMAN, California SHELLEY MOORE CAPITO, West Virginia GREGORY W. MEEKS, New York SCOTT GARRETT, New Jersey MICHAEL E. CAPUANO, Massachusetts RANDY NEUGEBAUER, Texas RUBE´ N HINOJOSA, Texas PATRICK T. MCHENRY, North Carolina WM. LACY CLAY, Missouri JOHN CAMPBELL, California CAROLYN MCCARTHY, New York MICHELE BACHMANN, Minnesota JOE BACA, California KEVIN McCARTHY, California STEPHEN F. LYNCH, Massachusetts STEVAN PEARCE, New Mexico BRAD MILLER, North Carolina BILL POSEY, Florida DAVID SCOTT, Georgia MICHAEL G. FITZPATRICK, Pennsylvania AL GREEN, Texas LYNN A. WESTMORELAND, Georgia EMANUEL CLEAVER, Missouri BLAINE LUETKEMEYER, Missouri GWEN MOORE, Wisconsin BILL HUIZENGA, Michigan KEITH ELLISON, Minnesota SEAN P. DUFFY, Wisconsin ED PERLMUTTER, Colorado NAN A. S. HAYWORTH, New York JOE DONNELLY, Indiana JAMES B. RENACCI, Ohio ANDRE´ CARSON, Indiana ROBERT HURT, Virginia JAMES A. HIMES, Connecticut ROBERT J. DOLD, Illinois GARY C. PETERS, Michigan DAVID SCHWEIKERT, Arizona JOHN C. CARNEY, JR., Delaware MICHAEL G. GRIMM, New York FRANCISCO ‘‘QUICO’’ CANSECO, Texas STEVE STIVERS, Ohio STEPHEN LEE FINCHER, Tennessee FRANK C. GUINTA, New Hampshire JAMES H. CLINGER, Staff Director and Chief Counsel (II) VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\76123.TXT TERRI SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES SCOTT GARRETT, New Jersey, Chairman DAVID SCHWEIKERT, Arizona, Vice MAXINE WATERS, California, Ranking Chairman Member PETER T. KING, New York GARY L. ACKERMAN, New York EDWARD R. ROYCE, California BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma RUBE´ N HINOJOSA, Texas DONALD A. MANZULLO, Illinois STEPHEN F. LYNCH, Massachusetts JUDY BIGGERT, Illinois BRAD MILLER, North Carolina JEB HENSARLING, Texas CAROLYN B. MALONEY, New York RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin JOHN CAMPBELL, California ED PERLMUTTER, Colorado KEVIN McCARTHY, California JOE DONNELLY, Indiana STEVAN PEARCE, New Mexico ANDRE´ CARSON, Indiana BILL POSEY, Florida JAMES A. HIMES, Connecticut MICHAEL G. FITZPATRICK, Pennsylvania GARY C. PETERS, Michigan NAN A. S. HAYWORTH, New York AL GREEN, Texas ROBERT HURT, Virginia KEITH ELLISON, Minnesota MICHAEL G. GRIMM, New York STEVE STIVERS, Ohio ROBERT J. DOLD, Illinois (III) VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\76123.TXT TERRI VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\76123.TXT TERRI C O N T E N T S Page Hearing held on: July 26, 2012 ..................................................................................................... 1 Appendix: July 26, 2012 ..................................................................................................... 29 WITNESSES THURSDAY, JULY 26, 2012 Berlau, John, Senior Fellow, Finance and Access to Capital, the Competitive Enterprise Institute (CEI) ................................................................................... 2 Bullard, Mercer E., President and Founder, Fund Democracy, Inc., and Jessie D. Puckett, Jr., Lecturer and Associate Professor of Law, the University of Mississippi School of Law ............................................................................... 3 Coffee, John C., Jr., Adolf A. Berle Professor of Law, Columbia University Law School ............................................................................................................ 4 Gallagher, Michael J., Chairman, Professional Practice Executive Committee, Center for Audit Quality (CAQ) .......................................................................... 5 Hatfield, Jeffrey S., President and Chief Executive Officer, Vitae Pharma- ceuticals, on behalf of the Biotechnology Industry Organization (BIO) .......... 6 Hollein, Marie N., President and Chief Executive Officer, Financial Execu- tives International (FEI) ..................................................................................... 8 APPENDIX Prepared statements: Garrett, Hon. Scott ........................................................................................... 30 Bachus, Hon. Spencer ...................................................................................... 32 Moore, Hon. Gwen ............................................................................................ 34 Berlau, John ...................................................................................................... 55 Bullard, Mercer E. ............................................................................................ 61 Coffee, John C., Jr. ........................................................................................... 82 Gallagher, Michael J. ....................................................................................... 93 Hatfield, Jeffrey S. ........................................................................................... 108 Hollein, Marie N. .............................................................................................. 115 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Garrett, Hon. Scott: Written statement of The Institute of Internal Auditors (IIA) ..................... 119 Attestation provisions of Lehman Brothers, JPMorgan, Bear Stearns, MF Global, Fannie Mae, and Freddie Mac ................................................. 122 (V) VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00005 Fmt 5904 Sfmt 5904 K:\DOCS\76123.TXT TERRI VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00006 Fmt 5904 Sfmt 5904 K:\DOCS\76123.TXT TERRI THE 10TH ANNIVERSARY OF THE SARBANES-OXLEY ACT Thursday, July 26, 2012 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 9:36 a.m., in room 2128, Rayburn House Office Building, Hon. Scott Garrett [chair- man of the subcommittee] presiding. Members present: Representatives Garrett, Schweikert, Royce, Biggert, Hensarling, Campbell, Pearce, Posey, Fitzpatrick, Hayworth, Hurt, Dold; Waters, Sherman, Lynch, Maloney, Himes, and Green. Chairman GARRETT. Good morning, everyone. The Subcommittee on Capital Markets and Government Sponsored Enterprises will come to order. Today’s subcommittee hearing is entitled, ‘‘The 10th Anniversary of the Sarbanes-Oxley Act.’’ Normally, you think of an- niversaries are good things. After we hear from this panel today, we will see how amused we should be about this anniversary. First, we are going to handle a couple of housekeeping items. We have a lengthy series of votes on the Floor that we have been ad- vised of beginning as early as 10:30, so in order to accommodate all of the members of our panel, it has been agreed to by us and the Minority that all Members’ opening statements that we nor- mally would give are going to be waived at this point as far as reading them, and they are going to be submitted for the record. In addition, the Minority has also agreed with us that—I guess you guys know this already, unfortunately—your opening state- ments have also been shortened from 5 minutes down to 3 minutes. For us up here, I advise the Members that I am going to strictly enforce the 5-minute rule. So if you have questions, make sure your questions get asked and answered within your 5 minutes so that we can go onto the next person’s questions. Finally, it is my intention that we will release the panel and re- lease the committee at the call to votes. Hopefully, the votes will go a little bit late. But when the votes are called, we have to go. So, thank you, everyone, for your accommodations. With that, I thank the entire panel for being here with us today. And we will start, as we always do, on the left hand side of our panel. Welcome. And for those of you who have not been here before, you have 3 minutes, not 5 minutes. As always, we ask you to please bring the microphone as close to you as you can because (1) VerDate Nov 24 2008 18:18 Mar 01, 2013 Jkt 076123 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\76123.TXT TERRI 2 some of us cannot hear you up here if you do not speak into the microphone. Mr. Berlau, welcome, and you are recognized for just 3 minutes. And thank you very