Has Sarbanes-Oxley Been Effective? – Q1

Has Sarbanes-Oxley succeeded in cleaning up corporate financial scandals? I note that restatements, a sign of malfeasance, seemed to be declining until recently. See (for 2006): http://www.cfo.com/article.cfm/8769763/c_8766684?f=home_todayinfinance and http://seekingalpha.com/article/121298-u-s-financial-restatements-down-almost-a-third-in-2008 for somewhat more recent performance. The two “Big Number” postings are much more recent.

If you think that Sarbanes-Oxley has been effective, why weren’t the financial institution problems uncovered under audit, before they collapsed in 2008? All major financial institutions regulated by the SEC (i.e., public companies other than Fannie Mae and Freddie Mac, including Bear-Stearns, Lehman, and AIG) had clean financial and Section 404 audits in their most recent year before collapse. My friend Alex Pollock wrote a paper on the topic for the American Enterprise Institute, which I have attached.

The impact of Sarbanes-Oxley on small firms is discussed at http://www.cfo.com/article.cfm/10599373/1/c_10600075?f=TodayInFinance013008. The article is somewhat dated, but the material is of some use in understanding how Sarbanes-Oxley interacts with real businesses.

Sarbanes-Oxley and Non-Profits – Q2

Should the provisions of Sarbanes-Oxley be extended formally to nonprofit organizations? How about to government agencies?

In some ways, audit standards for entities other than public companies have become more stringent than Sarbanes-Oxley requires.

Has Sarbanes-Oxley Pushed IPOs Offshore? Q3

For the first years after the passage of Sarbanes-Oxley, many companies chose to go public in London (the AIM = Alternative Investment Market sponsored by the London Stock Exchange). I had one client who tried to do so before the stock market collapse of 2008 and another who looked to move from NASDAQ to AIM. Both claimed that Sarbanes-Oxley was to blame.

Do you agree, or is there more to the story? Has the collapse of world financial markets over the past few years changed the pattern?

The desire of small public companies to escape from SEC reporting requirements, a related topic, is discussed at: http://bigfatfinanceblog.com/2009/04/08/the-dark-sides-bright-side-lower-compliance-costs/.

I’ve seen a suggestion that the tide may be turning. The (U.S.) JOBS act reduced certain reporting requirements for IPOs under $1 billion. Manchester United’s IPO happened in the U.S.; was that because of reporting requirements or because the controlling Glazer family (owners of the Tampa Bay Buccaneers) are in Tampa?