March 3, 2006

SEC can partly roll back Sarbanes-Oxley: Oxley

By Joel Rothstein

WASHINGTON (Reuters) - U.S. Rep. Michael Oxley, an author
of the Sarbanes-Oxley corporate reform law passed after Enron
and other corporate scandals, said federal regulators have the
legal authority to roll back key provisions for smaller U.S.
public companies, according to a letter released on Friday.

A Securities and Exchange Commission advisory panel
recently urged the elimination of the law's stiff internal
controls accounting requirements -- known as Section 404 -- for
companies under a certain size. Companies of all sizes have
complained the requirement is costly and burdensome.

Oxley's letter to SEC Chairman Christopher Cox was prompted
by at least one panel member, who questioned if the SEC had
legal authority to adopt the recommendation.

"We write to support the view that the Commission currently
possesses the authority to provide relief from the provisions
of the Sarbanes-Oxley Act" under the Securities and Exchange
Act of 1934 as well as the Sarbanes-Oxley law, the letter said.

The letter addressed only the SEC's legal authority and not
the substance of the proposed reforms.

It was signed by Oxley, the retiring chairman of the House
Financial Services Committee; and by Louisiana Republican
Richard Baker, chairman of a Financial Services subcommittee.

SEC advisory panel member Kurt Schacht, director of the CFA
Center for Financial Market Integrity, dissented last month,
writing that "it is unclear to many whether the broad exempting
recommendations of this subcommittee are even within the
commission's legal authority."

"Comprehensive, sweeping exemptions from Section 404 may
not be possible under the current legislation, which
specifically excluded Section 404 from the Securities and
Exchange Act of 1934," Schact also wrote.

While Oxley and Baker acknowledged in their letter that
Section 404 is not "a provision included in the Exchange Act,"
they noted that the two laws "must be construed together."

Section 404 requires U.S.-listed companies to explain their
internal controls publicly each year and have outside auditors
attest to the controls' effectiveness.

Georgetown University law professor Donald Langevoort said
last month that while the panel is recommending major revisions
to the Sarbanes-Oxley law, he saw nothing "inappropriate" in
the way it was proceeding.

Investor advocate Barbara Roper told Reuters that
regardless of the law, the recommendations are outside the
advisory panel's original charter.

"There is a big difference between making this work for
smaller companies and eliminating the requirements altogether.
They were supposed to come up with suggestions on how to make
this work," said Roper, director of investor protection at the
Consumer Federation for America.

The advisory panel's charter said that its objective was to
assess current securities regulations for smaller public
companies "and to make recommendations for changes."

The panel's recommendations defined "smaller public
companies" as those with market capitalizations under $787
million. Those companies account for 80 percent of all U.S.
public companies.

The panel urged the SEC to give a complete exemption from
Section 404 requirements to micro-cap companies with less than
$125 million in annual revenue, and to small-cap companies with
less than $10 million in annual revenue.

The committee defines companies with market capitalization
under $128 million as "micro-cap companies" and those with
market capitalization between $128 million and $787 million as
"small-cap companies."

Small-cap companies with annual revenue between $10 million
and $250 million would also be exempt from the external audit
requirements of Section 404 under the recommendations.