As of this writing, we have learned that Philip Bennett, the former CEO of Refco, moved $430 million to another firm that he controlled, Liberty Corner. He and his cronies made this money look like some normal transaction, and officials at Liberty Corner apparently asserted that the money was connected to some trades.

Unfortunately for Mr. Bennett, the truth is beginning to see the light of day. It appears that he was involved in securities fraud and that he covered it up by not revealing the real nature of these transactions and by not disclosing their related party nature. Soon after the story broke, the authorities arrested Bennett and several investors have initiated class action lawsuits.

My interest in the story lies in its providing solid evidence that Sarbanes-Oxley is a worthless piece of legislation. Congress entertained a series of progressive measures after the ruination of Enron and WorldCom. Interestingly, Representative Oxley, who has received generous donations from the accounting industry, helped enfeeble the legislation to help his friends. Ironically, his anti-reform efforts led to his name being associated with the bill.

If Congress really wants to reduce the number of incidents of accounting and securities fraud, there are a number of things it could do.

First, Congress should repeal the 1995 Private Securities Litigation Reform Act and the 1998 Securities Litigation Uniform Standards Act. Both acts made it harder for plaintiffs to win accounting lawsuits, and they capped the damages. Because these acts increased the incentives to cheat and lie in financial statements, managers gave us low-quality financial reports during the late 1990s and to the present. Enron was bound to happen.

The second thing Congress should focus on is the board of directors. Society must find ways of motivating directors to investigate the actions of top management and hopefully reduce, if not eliminate, the occurrence of accounting and securities fraud. However, to do this probably requires directors to suffer criminal and civil penalties when CEOs and other top managers defraud the public. If Congress would enact fines and prison sentences for shoddy work by directors, then directors would play less golf and scrutinize their executives more.

Third, as Congress examines the board of directors, it should ask whether it makes any sense to have the CEO also serve as the board chair. To me such an arrangement has an obvious conflict of interest. The British realized this fact over a decade ago and disallow such compositions. We should follow suit.

Finally, Congress should recognize the conflict of interest of a firm's paying those who audit it. I don't know the best replacement of this structure, but several possibilities exist. What I do realize is that this configuration causes external auditors to have too cozy of a relationship with the managers, thereby leading to various threats and pressures. It is hard to be vigilant when your job is on the line.

Let's get rid of Sarbanes-Oxley and its many silly features. Instead, Congress should think of real reforms for the accounting system. Our politicians will never change the human heart, but they can amend structures and institutions and they can change incentives to give financial reports a chance to attain some measure of integrity.

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J. EDWARD KETZ (edketz@psu.edu) is accounting professor at The Pennsylvania State University Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals.