Section 302 of Sarbanes-Oxley has gotten a lot of media ink over the years, as it struck many as a simple way to get companies to commit to financial statement transparency. By forcing the CEO and CFO to sign their names, attesting to the accuracy of financial reports, they put them on hook personally. 

By signing, these executives basically declare among other things that:

• They have read the report filed;
• The report does not contain untrue statements or omit material information;
• Financial conditions and operations of the company are fairly represented;
• The strength of internal controls is adequate;
• Significant deficiencies and material weaknesses have been communicated to the company's independent auditors and the Board audit committee;
• Fraud by senior management or other employees has been communicated; and
  
• Significant changes or corrective actions in internal controls or other factors have or have not taken place.

These declarations led to a big attitude change on the part of CEOs and CFOs. A mis-signature could result in criminal charges and jail time. Remember that as of now ex-Enron CEO Jeff Skilling is still in jail. 

Given recent events and revelations of shoddy document practices, it's fair to ask: Did the system break down in the foreclosure crisis? This is a little sibling question to the big one: Did Sarbanes-Oxley break down in the face of the larger mortgage mess and credit crisis? Some would say so and point to the lack of charges against top executives of big banks and mortgage companies, except perhaps Angelo Mozilo.. 

But one could also argue that the CEOs and CFOs signed off on processes and information that at the time seemed reasonable and that there was no way they could predict the credit crunch. In the foreclosure mess, there was obviously a procedural breakdown, and it's fair to wonder whether the CEOs and CFOs should be held responsible. It may not be strictly a Sarbanes-Oxley issue, as these foreclosures may not figure directly in the financial statements--which is why some think that requiring signatures attesting to the accuracy of foreclosure documents makes a lot of sense. 

As it turns out, the Treasury Department required mortgage servicing executives to sign Sarbanes-Oxley-like agreements that certify compliance with the Making Home Affordable Program. The signatures basically means the executives were shouldering personal responsibility for the accuracy and completeness of a company's financial statements. The agreements make it a federal crime to provide false or misleading information to the big GSEs. But this program may have been limited to modification efforts not foreclosure efforts. 

Still, it would seem reasonable to make executives--and there would have to be more than one--at a certain rank to sign off on foreclosure documents. That would inspire a lot more confidence than a robo-signer. - Jim