Refco and Sarbanes/Oxley

Business has launched its fall offensive to roll back the Sarbanes/Oxley act, the legislation passed in the wake of the Enron scandal that toughened reporting requirements for publicly traded companies. The campaign's managers must be gnashing their collective teeth this week as revelations about financial shenanigans continue to pour out of Refco, one of the world's largest futures and commodities brokerage houses.

For those who don't follow the financial pages closely, Refco's CEO Phillip Bennett, who went on indefinite leave Monday, apparently kept a $450 million loan to himself off the books for the past three years. Though he repaid the money as soon as it was discovered, the off-balance sheet transaction was precisely the kind of inside dealings Sarbanes/Oxley was designed to prevent.

The law requires that CEOs and chief financial officers certify that their financial statements are true, thus opening up the top officers to criminal prosecution of that later turns out to be incorrect. Presumably Bennett signed such documents for Refco, which went public a few years ago and sold stock to, among others, the good professors and teachers who invest through TIAA-CREF. General Motors was also a major investor, according to this morning's New York Times.

I wonder if Bennett was among those lobbying to get the law repealed. I'm also wondering if this is one of those butterflies that periodically flap their wings in the financial system and lead to systemic trouble down the road.