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Category: Sarbanes Oxley\


10th Anniversary of Sarbanes Oxley

SOX was designed to stop the accounting fraud that occurred at WorldCom, Enron, etc.  Its proponents said it would increase investor confidence in the stock market, eliminated accounting fraud, and decrease the cost of raising capital.  I doubt that anyone would say they have more confidence in the stock market today than they had ten years ago.  It clearly did not stop accounting fraud.  For instance, it did not stop the Lehman Brother, AIG, or LIBOR scandals.  Perhaps, Timothy Geithner will be prosecuting under SOX for his part in the LIBOR scandal.  Instead of decreasing the cost of capital it has made it impossible for startups to access the public market.  Sarbanes Oxley is a complete FAILURE and should be Repeal Immediately.  But the answer of statists is going to be that we need more laws and more regulations, since SOX failed to achieve its objectives.

What SOX has done is destroy the US public markets. In 1996 60% of worldwide IPOs went public in the US.  In 2005 only 20% of worldwide IPOs were in theUS.  TheUSis the only major country to have fewer public companies today than a decade ago.  It costs $3-$4 million in SOX compliance cost a year to be a public company.  This has killed the startup market and severely damaged the US economy.  It has also resulted in a concentration in power among a few firms on Wall Street.  The only people who have benefited from this law are accounting firms and they have done so at the expense of the rest of the country.

There is no way to “fix” this law – the JOBS Act is based on the idea that a little less poison will make the patient healthy. Every academic study that has looked at securities regulation has shown that it best it had no effect on the market and in most cases made outcomes for investors worse.

 

For More information see Sarbanes Oxley – Is the Medicine Worse Than the Disease – 1 and Sarbanes Oxley – Is the Medicine Worse Than the Disease – 2

 

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