With the White House's blessing, a House panel voted Tuesday to water down a key post-Enron measure designed to protect investors.
In a voice vote, members of the House Financial Services Committee agreed to permanently exempt from a provision of the 2002 Sarbanes-Oxley Act all publicly traded companies with market values less than $75 million -- which amounts to more than half of all public companies.
The provision mandates that firms obtain audits of their internal controls. Companies say it costs too much. Though these firms have received annual deferrals from this requirement since its 2004 enactment -- some think the fiercely anti-regulatory Bush administration had something to do with this -- SEC Chairman Mary Schapiro said last month that the deferrals had ended, and that the firms would be expected to comply by 2010.
So Reps. Carolyn Maloney (D-N.Y.), John Adler (D-N.J.) and Scott Garrett (R-N.J.) went to work. All three offered amendments to delay or prevent its planned implementation. Adler's amendment from last week went the furthest, proposing to exempt four out of five publicly traded companies.
Schapiro sent committee member Paul Kanjorski, a Pennsylvania Democrat, a letter expressing concern and the anti-investor amendments were beaten back last week after Kanjorski and committee chairman Barney Frank (D-Mass.) expressed disapproval.
Then the White House got involved.
On Tuesday, Adler offered a new amendment to permanently exempt smaller firms. Though it passed via voice vote, Frank requested a final roll call vote which is scheduled for Wednesday.
Per the Wall Street Journal:
At this morning's session, two committee members mentioned that the Obama administration is on board. "It's odd that I should be defending the White House," said Rep. Scott Garrett (R., N.J.), who introduced the amendment that would make permanent the small-company exemption that's due to expire next year. "The White House understands the importance of going forward" with the amendment, he added.
Rep. John Adler, a New Jersey Democrat who supports the amendment, also chimed in that the White House and Treasury Department back the repeal.
That prompted Rep. Paul Kanjorski (D., Pa.), who said a permanent exemption would be a "bad day for the American investor," to ask Adler to identify the administration folks with whom he had talked.
Adler said he discussed the matter three times with White House Chief of Staff Rahm Emanuel.
The amendments, which were first disclosed by the Huffington Post, have come under fire from former regulators and finance industry watchdogs.
Former SEC chairman Arthur Levitt said of the amendments:
This has enormous significance to individual investors. This is something the Republicans could never have accomplished, and what a bitter irony it is that the Democrats...are emasculating the best piece of legislation of the past 20 years.
It's the freshman members of Congress, fearful for reelection, that are pandering to interests that want to overturn this legislation. It makes a mockery of what the Democratic Party has always stood for -- individual investors.
Barbara Roper, director of investor protection at the Consumer Federation of America, added:
Congressman Adler's statements today appear to remove any question about the Administration's role in this travesty. Just to be perfectly clear, this White House, which has derided the deregulatory policies of the Bush Administration, is pushing an amendment that would gut post-Enron reforms beyond what the Bush SEC was willing to do.
While this issue is small potatoes compared to other issues currently under debate, such as reforming the derivatives markets or overseeing financial institutions that are 'too big to fail,' it tells us a lot about what we can expect. Their message that regulation is just too burdensome and too costly should send a chill down the spine of anyone who still held out hope that this Administration is serious about regulatory reform.