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Senate May Shrink Scope of Push to Roll Back SOX

Compliance Week | March 16, 2012

A group of Senate Democrats is moving to block legislation passed by the House last week that would roll back governance obligations for newly public companies, amid a sudden and fierce outcry from investor and governance activists.

Sen. Carl Levin, D-Mich., introduced amendments on Thursday that would define “emerging growth companies” as those with less than $350 million in annual revenue—not the $1 billion figure enacted by the House. But those emerging growth companies would still be exempt from Section 404(b) of the Sarbanes-Oxley Act, as well as any new requirement for mandatory auditor rotation and other standards from the Public Company Accounting Oversight Board. They would still also need to submit only two years' worth of audited financial statements before an IPO rather than the current three years.

Companies would lose their “EGC” status after five years, or after hitting $700 million in market capitalization and qualifying as large accelerated filers, or after issuing more than $1 billion in securities.

Levin, along with a handful of other Democrats, is trying to thwart the JOBS Act passed by the House last week. The bill, ostensibly aiming to ease the burden of initial public offerings, passed in the House of Representatives last week by a huge margin. But as its details became known, investor and good governance activists pounced on the Senate and rounded up numerous allies to slow the bill's progress. At the very least, the Senate legislation—originally proposed by Sen. Chuck Schumer, D-NY—won't come up for a vote until sometime next week.

In a speech on the Senate floor, Levin scortched the House bill as nothing more than a give-away to Wall Street banks looking for more IPO business, that would do little to help small businesses create more jobs. “The House bill reflects a disturbing failure to learn the lessons of the recent and all-too-painful past,” he said, and “would take a series of steps that would undermine the integrity of the financial markets. We should not go down that road."

The Levin amendments would also preserve a provision that allows EGCs to submit confidential registration statements to the Securities and Exchange Commission for a nonpublic review, but those statements would need to be disclosed within 30 days of a pre-IPO company beginning an investor roadshow.