SOX Center

Investors who got a midsummer haircut last week during the Dow’s 735-point drop from 14,000 probably aren’t singing Happy Birthday for the Sarbanes-Oxley Act, which is 5 years old today. But maybe they should be.

If you think last week’s sell-off was bad, recall the summer of 2002. Enron had imploded, WorldCom admitted to fabricating billions of dollars in earnings, and prosecutors were swirling around Tyco and Adelphia. From May 24 of that year to July 23, the Dow dropped from 10,104 to 7,702, a plunge of 24%.

That wasn’t a haircut, or a correction. It was a full-blown crisis. The public, and even the White House, demanded action.

In response, Congress passed the Sarbanes-Oxley Act on July 30, 2002. The law forced public companies to spend much more money having their books thoroughly audited, and it increased the penalties for executives who defrauded investors. Since the bill’s passage and implementation, nervous investors who had yanked trillions of dollars from the market have returned.

USA Today: Sarbanes-Oxley law has been a pretty clean sweep

A federal judge has dismissed a proposed shareholder class action lawsuit charging that MBIA Inc. defrauded investors by using sham reinsurance transactions to mask a $170 million bond loss in 1998.

U.S. District Judge Louis L. Stanton ruled Tuesday that the suit is barred by the two-year statute of limitations in the Sarbanes-Oxley Act.

Armonk, N.Y.-based financial guarantee insurer MBIA agreed last month to pay $75 million to settle U.S. Securities & Exchange Commission fraud charges related to the 1998 reinsurance deals. The retroactive reinsurance—placed with AXA Re Finance S.A., Munich Reinsurance Co. and Converium Re—allowed MBIA to avoid taking a $170 million loss on bonds issued by a bankrupt affiliate of Allegheny Health, Education and Research Foundation of Pittsburgh. In side agreements, MBIA promised to repay the reinsurers by transferring future bond business, and regulators charged that MBIA should have accounted for the deals as loans rather than as reinsurance.

Business insurance: Judge rejects class action against MBIA