- The Washington Times - Saturday, March 17, 2007

We have our political differences with Rep. Barney Frank, Massachusetts Democrat and chairman of the House Financial Services Committee, but we’ll be the first to note that Mr. Frank knows what he’s talking about on the Sarbanes-Oxley Act. So his much-noticed support for loosening parts of the 2002 law at this week’s Chamber of Commerce summit is significant. One of the best places to focus would be relief for small publicly traded companies.

These firms were not the law’s intended target but have been harmed disproportionately by Sarbanes-Oxley’s internal control functions. Top Democrats, including House Speaker Nancy Pelosi, have nodded in the direction of relief since last year’s campaign season, and with good reason. The nonpartisan RAND Corp. found that 53 percent more publicly traded companies with market capitalization under $20 million sold out to private buyers in the first year after the law was enacted. For many of these firms, remaining public makes no sense when the Section 404 requirements are proportionally quite expensive. Biotechs, startups and more established firms like thrifts or community banks, are among the affected.

Don’t take it from us. “I never intended to have these guys comply with what General Motors complies with,” Jim Greenwood, who was a Pennsylvania lawmaker before becoming head of the Biotechnology Industry Organization, told us last year. Local executive Gary Lessing, chief financial officer of cancer-drug developer Avalon Pharmaceuticals of Germantown, said that 2 percent of his company’s $30 million 2005 expenditures were related to Sarbanes-Oxley. The 8-year-old company had no sales that year because its products were not yet at market.

It’s not hard to imagine that at least some of the next generation’s Google or Home Depot may be postponing entry into the public capital markets or even leaving them because their financial footing is still precarious. Government should not block useful interactions with ordinary investors.

We hope Mr. Frank warms to a bill re-introduced this week by Rep. Gregory Meeks, New York Democrat and Rep. Tom Feeney, Florida Republican, to ease the relevant parts of Sarbanes-Oxley for small publicly traded companies. Nearly every politician professes to love small business. Supporting the bill would be one way to follow through.


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