Deregulation

Part-Time Deregulators

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First, let's give credit where it's due:

By a vote of 37 to 32, the House Financial Services Committee moved to permanently exempt companies worth less than $75 million from the auditing provisions of the Sarbanes-Oxley Act, a change that was promoted by the White House chief of staff, Rahm Emanuel.

The amendment was criticized by senior Democrats, including Representative Barney Frank of Massachusetts, the chairman of the committee. But at a news conference on Tuesday, Mr. Frank defended Mr. Emanuel's involvement, saying he had helped to negotiate a substantial narrowing of the provision.

The companies that would be permanently relieved of auditing requirements under Sarbanes-Oxley have repeatedly won temporary exemptions from the Securities and Exchange Commission. The amendment approved by the committee was sponsored by two New Jersey congressmen, John Adler, a Democrat, and Scott Garrett, a Republican. Supporters said the more stringent auditing provisions were overly burdensome to small companies and that easing them would encourage job growth.

Before you decide the administration has become a band of born-again deregulators, here's the context of the exemption:

The bill, part of a broader effort to overhaul the regulatory system in response to the crisis in the financial markets, would provide new powers and increased resources to the Securities and Exchange Commission….It would also give the Federal Reserve a lead role in directly supervising many of the largest financial conglomerates.

For more from Reason on Sarbanes-Oxley, go here.

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  1. “The supporters of this amendment, including apparently the White House, have suggested that weakening protections against accounting fraud is justified in order to promote job growth,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “That is precisely the sort of thinking that landed us in the current mess and precisely the sort of thinking Democrats criticized when they were blaming Republicans for the current financial crisis.”

    Shut the fuck up, Barbara.

  2. I’m a securities lawyer, and work with a bunch of these smaller reporting companies. The burden that was going to be placed on these companies to comply with 404(b) was pretty overwhelming. Incredibly happy to see this.

  3. I thought one point on which there was broad agreement was that the SEC and the Fed played a role, whether passive or active, in the events leading to the current crisis. At the very least, they failed to curb the abuses leading to the crisis, and the justification for their great powers is that they are supposed to curb precisely that sort of abuse.

    And now these agencies are going to be rewarded with more power and money?

    Consider the incentives we’re giving with this sort of thing.

  4. SarbOx is the epitome of bad regulation: a great deal of work to comply with, for no real benefit.

    Right up there with OFAC.

  5. Time to slack off!

  6. Good. Now the CPAs will have to come up with a new excuse to rationalize their ever-increasing audit fees.

  7. Anytime government does something seemingly good, you have to ask, what’s the catch?

    1. Yeah, anytime I see an article about some apparent lessening of government’s intrusiveness, I skip down a few paragraphs to see what enlargement of government authority or activity was REALLY at the heart of the bill. The lede that matters to you and me is often buried.

  8. Before you decide the administration has become a band of born-again deregulators, here’s the context of the exemption:
    Baby steps.

    Statement from ICBA:

    http://www.icba.org/news/newsr…..umber=1733

    Two NJ Congressmen. One from South Jersey. Yes, there are many small community banks in SJ. Some are actually funding small commercial projects, like this one

    http://www.capitalbanknj.com/about/directors.html

    while BoA and Wachovia sit around with their thumbs up their asses. Small business owners, formed a small bank, to serve the needs of small businesses. What a novel idea. It’s about time DC bureaucrats started thinking about the little guy. Too bad it took a financial meltdown to open their eyes.

  9. Wow. Rahm Emanuel does something not completely evil!

  10. Thank god they provided increased resources to the SEC, I’m sure they never thought of doing that before.

  11. A few years of double-digit inflation, and that $75mm exception is going to look pretty sorry.

  12. I don’t understand why the cut-off is @ $75. Why not $100, or $50? It’s good for now, but to echo R C Dean, it’s gong to end up working like the AMT did. In about five years companies that are worth $50 million in today’s dollars will no longer be exempt.

    Regards,
    TDL

  13. Hmm, why do I not feel much better?

  14. 1 step forward, 12,496 steps back.

  15. SOX is and always has been a joke. Bad legislation that was internally inconsistent and poorly written from the get-go. The exemption was lobbied for and supposedly supported by Cox years ago, but it took all this time before Congress finally felt they could pass the exemption without anyone noticing. Yeah, they’re that cowardly.

  16. It would also give the Federal Reserve a lead role in directly supervising many of the largest financial conglomerates.

    Yay.

  17. This may not be what you think it is. Under current law, the thresholds for reporting companies (even if they’re private) are 500 holders of a class of equity and ten million in assets (not equity). The shareholder limit is the more problematic of the two. In practice, no company with close to 75 million million in assets has so few shareholders, and even if they do now, death and inheritance guarantee that over time they will. Raising the asset limit doesn’t solve the shareholder problem, which was set something like 25 years ago and should really be more like 1500-3000 shareholders in today’s world. The asset limit itself was also set at the same time, it’s good to see it might go up, though not indexing it to inflation is a bad idea.

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