It's ten years since the Enron scandal prompted the Sarbanes-Oxley act that requires stepped-up audits of big U.S. companies. President Obama has encouraged Congress to chip away SarBox paperwork requirements for "emerging" companies he hopes will hire more Americans.
So in 2010. the Dodd-Frank law exempted companies with public shares worht less than $75 million. Last Spring the so-called JOBS Act gave companies. with shares worth under $700M and sales under $1B, a five-year SarbOx audit delay.
Now US Rep. Mike Fitzpatrick, R-Bucks, is pushing a permanent SarbOx audit exemption for companies with shares under $250 million or sales under $100 million. He calls his bill (HB 6161) the "Fostering Innovation Act."
How would this help Bucks County? At a hearing in Congress Thursday, Jeffrey S. Hatfield, chief executive of Fort Washington-based Vitae Pharmaceuticals, plans to testify on behalf of the Biotechnology Industry Organization, an industry lobby, in support of Fitzpatrick's bill.
Vitae, which employs 55, has spent ten years working on therapies for kidney disease and other chronic sickness. Hatfield says he'd like to raise money from public investors by doing an initial public stock offering -- but SarbOx audits would cost Vitae a million dollars a year, he estimates, and that's too much for such a small firm.
Hatfield says previous trims to SarbOx have encouraged more biotech firms to file for IPOs. He says Fitzpatrick's exemptions would encourage still more.
But Columbia University Prof. John Coffey, a corporate-governance expert who will also testify, ridicules Fitzpatrick's bill as the "Mature Mediocrities Act."
Previous SarbOx cuts resulted in Britain's 135-year-old, money-losing Manchester United football team filing a US IPO and winning exemption as an "emerging company," making the US an object of "mockery," Coffey notes.
He says Fitzpatrick's exemption would give the companies most in need of oversight and disclosure an "open-ended' exemption from audit scrutiny. Instead of continuing to offer investors the world's best protection, the U.S. is moving desperately toward wide-open markets, where investors had best beware.
Fitzpatrick's willing to take that risk, if it will help companies raise more money and maybe hire more people.