HP's Hurd Has Nothing to Fear from SEC or SOX

*Section 406 can be applied in a host of situations in which corporations have been naughty. For instance, a health care company called Amedisys(AMED) is being probed by the SEC for allegedly manipulating the Medicare reimbursement system. A class-action suit contends that "the Company was in material violation of its Code of Ethical Business Conduct and compliance due to the scheme to inflate Medicare revenues."

* No discussion of corporate ethics is complete without my favorite cult stock, Overstock.com (OSTK). Late last year, the company was enmeshed in a pretexting scandal involving Facebook, directed at journalists and others perceived as hostile to the company's effervescent CEO Patrick Byrne. A Byrne employee targeted a ragamuffin bunch, ranging from yours truly to financial commentator Barry Ritholtz, and members of our families. Does SOX apply in this situation? Well, here's a copy of the Overstock code of ethics, which contains a stricture against "even the appearance of improper behavior." In contrast to HP, Overstock's board did nothing.

That's the bottom line. If a board doesn't care about philandering, book-cooking, pretexting executives, you can pretty much count on the SEC looking the other way. Of course, there's a school of thought that holds the government has no business policing corporate ethics in the first place. I might feel that way myself, if I weren't reminded repeatedly how boardroom behavior can have a devastating public impact.

Congress is giving some thought to patching the numerous holes in Dodd-Frank, such as getting rid of an absurd clause exempting the SEC from the Freedom of Information Act. But Sarbanes-Oxley is already on the books. It just has to be enforced. If the SEC isn't up to the job, Congress should give that job to the new consumer protection agency being established at the Federal Reserve. I know, it doesn't seem to square too well with that agency's mission. But if the SEC won't enforce SOX, somebody has got to do the job.

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