Are Potential Market Gems Being Impeded?

It's the dream of many investors—hit the jackpot by getting in early on the next Microsoft or Coca Cola. But the Sarbanes- Oxley (SarbOx) Act of 2002, enacted as a result of Wall Street scandals like Enron, is proving to be a hinderance to small companies going public. And when the small, up-and-coming companies don’t go public, the odds of an investor hitching onto a future super stock at the ground level are almost nonexistent.

According to SFO Magazine, there is substantial evidence to show that the SarbOx Act's rules have made the cost of going public beyond most small companies' reach. The law requires that auditors and executives sign off on the accuracy of financial statements and a company's internal controls. The law requires that only independent directors sit on companies' audit committees and that a company's auditor not perform any additional services for the firm. For small companies with little cash to throw around, having to hire multiple accounting firms is impossible and makes going public out of reach. SarbOx is also affecting smaller public companies, forcing them to delist from the market. Some Congress members, including House Speaker Nancy Pelosi, are calling for a revision of some of SarbOx's requirements.