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The Competitive Enterprise Institute and the Free Enterprise Fund have filed a suit charging that some aspects of Sarbanes Oxley (SOX) are unconstitutional violations of separation of powers requirements.
The real gravamen of the complaint is substantive, not technical, though:
“With a recent University of Rochester study concluding that the total effect of Sarbanes-Oxley has reduced the stock value of American companies by a staggering $1.4 trillion dollars, it is now clear that the costly regulatory burdens imposed by this legislation absolutely outweigh its benefits,” said Mallory Factor, chairman of the Free Enterprise Fund. “The PCAOB and the Sarbanes-Oxley Act raise unconstitutional barriers to needed liquidity, discourage entrepreneurship and innovation, and hinder U.S. competitiveness by denying access to needed capital. Further, the high cost of compliance that disproportionately affects smaller public companies is having long-term, exponential negative implications for our economy.” This is a serious effort; the legal team includes Kenneth Starr (Pepperdine University); Viet D. Dinh (Professor of Law, Georgetown University); Michael A. Carvin (Partner, Jones Day); and Hans Bader (Counsel, Competitive Enterprise Institute).
Prof. Larry Ribstein heartily endorses the effort:
I’ve profiled the many problems in my Sarbanes-Oxley archive and in a series of articles noted in those archives, including here and here. In the works is a longer work for the AEI with Henry Butler that makes the case that SOX has been an unmitigated disaster, contrary to the claims of its defenders who even in the face of mounting problems and evidence attempt to sugar-coat the negative effects of the law. We’ll be presenting the paper at the AEI March 13.
Obviously this would be a drastic, unprecedented move against a major piece of legislation that, for all its flaws, has been vigorously defended by prominent politicians and journalists. Even the constitutional lever is unlikely to be enough.
But even if the odds are long, the effort is still arguably worth it. SOX wasn't just a bad law, but a uniquely bad law, passed under uniquely bad conditions without any of the safeguards that normally accompany major legislation.
And even if repeal or drastic shrinkage is impossible, it's still necessary to make the case as a warning against future SOX's. One way to do that is to establish SOX as a paradigm of bad law. In other words, to make Sarbanes and Oxley the Edsel Ford of corporate governance regulation. PFF has contributed its acerbic best to the reform cause, too, and to the similar misguided requirements on stock options -- there are too many to link to; use the search function to find SOX and "stock options."
posted by James DeLong @ 1:36 PM | Accounting
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