Consumer Federation of America and Americans for Financial Reform Decry
House Financial Services Committee Vote to Weaken Post-Enron Fraud Protections
WASHINGTON, Nov. 4, 2009 –Today, Americans for Financial Reform and Consumer Federation of America released the following statement in response to the House Financial Services Committee vote to weaken protections against accounting fraud at roughly half of all public companies. The 37-32 vote came on an amendment by Rep. John Adler (D-NJ) and Rep. Scott Garrett (R-NJ) that permanently exempts companies with less than $75 million in market capitalization from the requirement under Section 404(b) of the Sarbanes-Oxley Act that auditors assess the effectiveness of the company’s accounting fraud controls as part of their annual financial statements audit:
Joint statement of Heather Booth, Executive Director of Americans for Financial Reform and Barbara Roper, Director of Investor Protection at the Consumer Federation of America:
The process of cleaning up Wall Street is long, complicated, and ugly. As we struggle to design legislation to create real reform, some big banks and their political representatives are rolling back existing transparency and accountability. Sadly, the argument that regulation is simply too costly and too burdensome clearly still has enormous influence on many members in Congress. Today’s vote on SOX 404 in the House Financial Services Committee is a classic and distressing case in point.
The Committee is voting on legislation designed to protect investors’ like the millions who lost their retirement savings in this Great Recession. Amazingly, after the worst financial crisis since the Great Depression, this bill is being used by some as a vehicle to roll back what few effective protections investors already have by weakening reforms put in place after the Enron collapse.
SOX 404 has been hailed by investors as a crucial reform, but has been under constant attack by the business community. Despite extensive revisions to the standards to make them ‘less burdensome’ and costly, a recent SEC study showing that implementation costs have dropped dramatically, and
independent studies that show a drop in costly restatements at companies that have implemented SOX 404, the opponents just keep coming with their demands for a small-company exemption.
As a result of these attacks, companies with under $75 million in market capitalization have still not implemented the audit requirement more than seven years after the law took effect. Thanks to the Adler/Garret amendment, they never will.
Organizations such as the CFA Institute Centre for Financial Market Integrity, Council of Institutional Investors, and the American Association of Individual Investors are supportive of full SOX implementation. In a recent letter to the House Financial Services Committee, these groups noted that “SOX has contributed significantly to restoring investor confidence, which was shaken from the scandals that occurred just prior to its enactment. In particular, we believe that the external auditor’s involvement under Section 404(b) has played a crucial role in promoting reliable financial reports, which are essential to providing investors with the information they need to make confident investment decisions. In fact, according to a 2007 survey conducted by the AARP, over half of the respondents noted that SOX made them more confident in the information they receive from companies before they decide to purchase their stock.” (Letter can be found here)
Members had a chance to demonstrate that they are committed to protecting the public interest and not the special interests. Unfortunately, with their vote on the Adler/Garrett amendment, a majority of the Committee failed that test.