Skip to content

Supreme Court Decision Serves as Reminder of Sarbanes-Oxley Disclosure Requirements

March 5, 2015

On February 25, 2015, the U.S. Supreme Court held in Yates v. United States[1] that fish were not "tangible objects" under the anti-shredding provision of the Sarbanes-Oxley ("SOX") Act of 2002. That language states that anyone who "knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation" of a federal agency can be fined and/or imprisoned for up to 20 years.

The SOX Act was enacted in the wake of the Enron accounting fraud, but in Yates, the federal government argued that this provision extended to all types of physical evidence. Based on this rationale, the U.S. Court of Appeals for the Eleventh Circuit upheld the conviction of a Florida boat captain who had allegedly directed his crew to throw undersized fish overboard and replace them with fish meeting the applicable legal requirements after a federal agent had ordered the captain to return to shore with the undersized fish. Rejecting this theory, the Supreme Court held that only objects used to record or preserve information could be considered tangible objects under the SOX Act, and reversed the conviction.

The decision is widely regarded as an appropriate check on government overreach, but it also serves as a timely reminder of the harsh penalties high-level corporate officials can face under the SOX Act and related Securities & Exchange Commission ("SEC") regulations. These regulations include disclosure requirements related to companies' environmental liabilities and costs. For example:

Under Regulation S-K 101, companies must disclose the material effects that complying with environmental laws will have on company earnings, competitive position and expenditures, and must also report expected material capital expenditures for "environmental control facilities."
Under Regulation S-K 103, companies must disclose environmental legal proceedings, including pending actions, that are considered material or that involve government agencies as parties and can result in monetary fines of $100,000.00 or more.
Under Regulation S-K 303, companies must disclose environmentally-related "trends, events or uncertainties" (e.g., upcoming regulations or potential liabilities under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA")) that could have a material effect on the companies' finances.

SEC guidance also explains that the disclosure requirements outlined above can relate to climate change impacts as well.[2] These impacts could include the indirect consequences of climate change regulation and related business trends (e.g., a decreased demand for goods that produce significant greenhouse gas emissions) and even the physical impacts that climate change may have on the company (e.g., changes in weather patterns, sea levels, the arability of farmland, and water availability and quality).

Although compliance with these regulations was required before the SOX Act was enacted, the SOX Act provides for harsher penalties, mandates that companies incorporate internal control programs to ensure the accuracy of their financial reports and disclosures, and obligates the companies' CEO and CFO to personally certify as to the effectiveness of internal control programs and the accuracy of the companies' financial reports and disclosures.  Under the SOX Act, CEOs and CFOs can individually face significant penalties of up to 20 years in prison or $5 million in fines for certifying noncompliant reports.

For more information on environmental disclosures and how to best protect yourself and your business, please contact Jane Luxton ( | (202) 572-8674) or Ted Planzos ( | (202) 572-8666).


[1] Yates v. United States, 574 U. S. ____ (2015).

[2] 75 Fed. Reg. 6,290 (Feb. 8, 2010).

Subscribe For The Latest