All GLG News Analyses Filed Under: Exchange & Other Regulatory Bodies

Maurice MurphyFounder & PrincipalTMT Legal

Potential Changes to SOX

May 11, 2006

Analysis of:SEC's Cox says Sarbanes-Oxley tricky in practice | www.marketwatch.com

The recent ACSPC recommendations poiunt a possible way forward for reform of SOX, which continues to attract the attention of political heavyweights and which the SEC has admitted is not working as well as it would like in practice.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

The Sweet and Sour effects of SOX

May 5, 2006

Analysis of:Q&A - Harvey Pitt on 404 | www.cfo.com

In  this  article  Harvey  Pitt,  former  Chairman  of   the  SEC  shares  his  thoughts  on  Section  404  and  talks  about  it  becoming  the  global  standard  for  internal  control  across  financial  markets.

Peter CulpepperChief Financial OfficerProvectus Pharmaceuticals, Inc.

Accounting Errors Drive Support for SOX Section 404

May 3, 2006

Analysis of:Restatements Deliver Fuel for Reform | www.cfo.com

The key implication of the article is that Section 404 of the Sarbanes-Oxley Act appears to be strongly supported by the SEC chairman and other former regulators which means that Section 404 appears to be here to stay even though smaller companies oppose the law in its current form for them.  The reason against regulatory breaks for smaller cap companies is the recent announcement that two smaller companies had accounting errors that led to restatements.

The key implication for investment analysts is that the question of whether smaller cap companies will need to fully comply with Section 404 will be unclear in the foreseeable future.  And furthermore, the lack of direction in the resolution of the regulatory burden for smaller cap companies will likely continue up to the deadline for full compliance, which is 31 December 2007.

Peter CulpepperChief Financial OfficerProvectus Pharmaceuticals, Inc.

SOX before the Supreme Court?

May 3, 2006

Analysis of:U.S. Supreme Court may consider Sarbanes-Oxley anti-fraud law | www.chron.com

The key implication of this article is that the Sarbanes-Oxley law is under growing pressure for some type of revision.  Aside from the effort to deem the law unconstitutional by Kenneth Starr and the Free Enterprise Fund, there is also the effort for small companies to have regulatory exemptions and for lawmakers to legislate changes to SOX.   

The implication to investment analysts is that small companies are increasingly pressured to deal with the mounting regulatory burdens as SOX impacts them at an increasing level of cost.  So, smaller companies are struggling with the SOX cost burden, which impacts earnings.  And, other companies are not going public which means that capital formation in the US is not as favorable as it was because of the additional burden that SOX is creating.

SOX 404 – The Necessary “Evil”

April 24, 2006

Analysis by: GLG Expert Contributor

Analysis of:Speech by SEC Commissioner: Remarks Before the Meeting of the International Organization of Securities Commissions Standing Committee No. 1 | www.sec.gov

*  Article is a published speech recently given by an SEC commissioner.  Although the published comments are a bit lengthy, it should make for an interesting read for anyone who particularly “supports” or “opposes” the various provisions of SOX 404.
*  Comments include a somewhat balanced discussion on the benefits of Section 404 as well as acknowledging its challenges.  Significant concern is also given toward a hot issue in recent months involving “smaller” public companies being partially or wholly exempted from the main requirements of Section 404.
*  The published comments should give investors several interesting and tangible data points that give some perspective on (1) the significant increase in restatements of financial results by public companies of all sizes since the passage of Sarbanes-Oxley Act, (2) the disproportionate and substantial amounts of these financial restatements coming from "smaller" companies, (3) the material amount of smaller companies which could potentially be exempted from SOX 404 requirements and (4) the potential increased risk in the financial reporting process of smaller companies. 

Peter CulpepperChief Financial OfficerProvectus Pharmaceuticals, Inc.

Will/should smaller public companies get SOX 404 relief?

April 11, 2006

Analysis of:Comments requested on Advisory Committee recommendations | www.mcgladrey.com

As is widely known and discussed, Section 404 is putting fear into smaller public companies, let alone larger public ones. But will smaller public companies, which the article states are less than $787 million of market capitalization, have scaled securities regulation? This is the recommendation of the SEC's Advisory Committee on Smaller Public Companies. Further, the primary recommendation is that microcap companies have even less securities regulation than small cap companies which represent the $128.2 million to $787.1 million market cap range.

Furthermore, it is recommended that certain public companies be exempt from all of the SOX 404 internal control reporting requirements. Additional recommendations have been proposed as well.

What are the business implications of these recommendations? It appears that input has been more prevalent from much larger public companies, so the intent has been to hear from smaller public companies. Nevertheless, with the requirement date of full Section 404 implementation looming on the horizon in 2007, it appears that all public companies should seek to prepare instead of waiting to see if the securities regulations are scaled back.

If in fact the securities regulations are scaled back for smaller public companies, it appears that shareholders will likely think twice before investing in them since the perception will be that internal controls are less effective even though the reality may in fact be the opposite. So, whether or not the securities regulations are scaled back, smaller public companies will have the burden of keeping their investors trust by ensuring that they are operating with effective internal controls.

SOX 404 – Additional Evidence Against Creating a “Protected Class”

April 5, 2006

Analysis by: GLG Expert Contributor

Analysis of:Small Companies Pay for Accounting Errors | www.cfo.com

*  Short article discussing two small-cap companies' announced restatements of financial results due to accounting errors.
*  The two additional examples should provide additional evidence for the argument against granting SOX 404 regulatory breaks to “smaller” companies.

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