According to a Wall Street Journal article dated December 15th, 2009 the Sarbanes Oxley Act (SOX) costs about $2.4 million per publicly listed company. Since the US has approximately 15,000 companies listed on public exchanges or trading over the counter we are looking at $36 billion per year in costs for a law that is a total failure. For those of you who do not remember, SOX was enacted in reaction to the Enron and Worldcom disasters. The law was designed to both deter companies from filing false and/or misleading reports to investors, and to punish corporate executives who violate the law. The punishment was intended to be a criminal offense with jail time. The act was nicknamed the “Truth in Securities Law”, and was 66 pages long.
Now we fast forward to 2008, where we have a myriad of financial firms that failed such as Lehman Brothers, Countrywide Financial and other firms. With Lehman Brothers, $50 billion was moved off-balance sheet to shore up the financials for investors, an action that has been widely viewed as fraudulent, but SOX has not been invoked to punish any executives. The same can be said for the fraud at Countrywide Financial. In that case, the SEC won its biggest civil fraud case ever. Angelo Mozilo was ordered to pay $67 million in fines and Bank of America, which bought Countrwide, was ordered to pay $335 million. It was agreed that both investors and homeowners were misled and that Countrywide’s financials were misleading, yet SOX was not invoked to indict Mozilo of criminal charges. Well, if civil fraud and annual reports that are clearly misleading do not trigger SOX then the law is so broken, it should be repealed! The statute should be on the lips of every Tea Party member, since the law costs companies approximately $2.3 million a year to comply. Also, since SOX was enacted the number of companies that have gone public has declined and the number of companies going private has increased significantly.
Having fewer companies with access to public money decreases the size of companies and of course the number of jobs. So we really need a study to see how many jobs have been lost along with the approximately $36 billion in annual costs that SOX has added to our economy without any real benefit!
http://www.inc.com/magazine/20050901/surviving-so-sidebar.html
