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Sarbanes-Oxley - New Developments

There are a number of significant new developments in the world of Sarbanes-Oxley. First and most important is litigation: Free Enterprise Fund v. Public Company Accounting Oversight Board, which seeks to have Sarbanes-Oxley ruled unconstitutional.

I'm a long way from a constitutional scholar, but it seems to me that the Free Enterprise Fund is making an excellent case. They make several points in their case, including that the PCAOB can levy fees and fines on its own - which is a power traditionally reserved for the legislature. As an example, the IRS - which many of us would argue is insanely powerful - can't raise taxes - Congress must legislate a tax increase. PCAOB can raise fees on all public companies at will.

This is course will take years to work through the courts - but may prove to be the fatal shot.

A more near term change comes from the Committee on Capital Markets Regulation, which points out that Sarbox has imposed massive costs on the economy, and a regulatory regime so hostile that foreign companies, which used to visit the previously friendly American capital markets, have decided to raise capital elsewhere. The notable statistic is that of the ten largest public offerings in 2006, none occurred in the U.S.

This leads to unusual bipartisan support, as Democrats like Senator Chuck Schumer see the incredible tax revenue stemming from Wall Street diminishing in the future join conservatives who favor more lassiv-faire markets. While not in the first hundred hour program championed by House Democrats, legislation to amend the well-intentioned but economically poisonous Sarbanes-Oxley legislation.

Finally, the SEC is continuing to postpone Section 404 requirements on smaller capitalization companies - in recognition of the shocking cost to create mounds of paper to satisfy a "standard" that was developed before the widespread adoption of personal computers, networks and the Internet. This documentation requirement provides virtually no value to anyone, does little or nothing to prevent fraud, and imposes an ongoing maintenance cost. In a zany feat of logic failure, the SEC concludes that small companies can't cost justify it - but that it is important for larger companies - where costs routinely exceed $10 million of hard-earned shareholders' money per year - should continue compliance.

Hope for the litigation; write your Congressman for the legislation.

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