Sarbanes-Oxley Casts a Wide Net, Literally

07 August 2014 Wisconsin Appellate Law Blog

Congress passed Sarbanes-Oxley in 2002 to deal with the accounting scandals that resulted in the downfall of the likes of Enron, Tyco, Worldcom, Arthur Andersen, and others. In its October Term 2014, the Supreme Court will decide if the act’s anti-shredding provision applies to fish.

That’s right, fish. Those slippery, gill-bearing aquatic animals. How did this come to be?

Sarbanes-Oxley contains an anti-shredding provision, 18 U.S.C. § 1519, that criminalizes knowingly altering, destroying, mutilating, concealing, covering up, falsifying, or making a false entry in “any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration” of any federal matter. Fish, according to the federal government, fall within the ambit of the “tangible object” in § 1519.

A broad reading of that term could create a real burden to businesses, particularly in compliance and storage costs. If a “tangible object” in Sarbanes-Oxley includes a fish, imagine what else it might include.

The petitioner, Yates, was the captain of the Miss Katie, a vessel engaged in commercial fishing off the coast of Florida in the Gulf of Mexico. A law-enforcement official boarded the Miss Katie and found 72 red groupers under the 20-inch legal limit. The official crated up the undersized fish and ordered the petitioner to return to port without disturbing them, but Yates ordered his crew to throw the undersized fish overboard and to replace them with fish longer than 20 inches. Federal officials discovered the deception when the Miss Katie returned to shore.

Yates was found guilty following a jury trial in the Middle District of Florida of destroying or removing property to prevent seizure under 18 U.S.C. § 2232(a) and of destroying a “tangible object” under Sarbanes-Oxley’s anti-shredding law, § 1519. Presumably the government charged Yates with the latter crime because violating Sarbanes-Oxley’s anti-shredding provision carries a maximum sentence of 20 years’ imprisonment. Section 2232(a), by contrast, has a five-year maximum. Regardless, Yates received 30 days and three years of supervised release. The Eleventh Circuit affirmed his conviction. 733 F.3d 1059 (11th Cir. 2013). The Supreme Court granted the writ of certiorari on April 28, 2014.

Yates has framed the question presented for the Court as “[w]hether the ordinary or natural meaning of the phrase ‘tangible object,’ in light of its surrounding terms and its placement in the Sarbanes-Oxley Act, is a thing used to preserve information, such as a computer, server, or similar storage device.” Br. of Pet’r at i.

The decision could have significant implications for those required to comply with Sarbanes-Oxley, and it’s likely to be a noteworthy decision on statutory interpretation too.

The case is Yates v. United States, No. 13-7451. Argument has not yet been scheduled.


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