This was a vote on an amendment offered to H.R. 4173, a bill designed to prevent the kind of major financial crisis that had recently occurred, Although the bill included provisions imposing greater regulation on public companies, it also contained language exempting public companies with less than $75 million in market value from the audit of internal controls requirements of the Sarbanes-Oxley Act. These audit requirements were originally imposed to provide protection to all those who invest in publicly-traded companies. This amendment, offered by Rep. Kanjorski (D-PA), would have eliminated the language in H.R. 4173 exempting those smaller public companies. Its passage would have meant that all public companies would be subject to federal audit requirements regardless of their size.
Rep. Sarbanes (D-MD), whose father was the co-author of the original Sarbanes-Oxley Act, spoke in support of the amendment. He argued that it would maintain “critical investor protections (even though) those who oppose this (amendment) say that the smaller publicly traded companies can't handle the burden of compliance. (But the) costs (of compliance) have come way down . . . because the Securities and Exchange Commission has been careful to work with these smaller companies to make sure that that burden is not too heavy.”
Sarbanes added: “The fact of the matter is that if you are an investor, it doesn't matter to you whether you are investing in a smaller company or a larger company. What you want to know is that that company is not cooking the books. If we don't pass this amendment, then almost half of the publicly traded companies in this country will be exempt from these basic transparency requirements.”
Rep. Frank (D-MA), the chairman of the Financial Services Committee, supported the amendment. He said that the Securities and Exchange Commission “has recognized the potential problems for people under $75 million. . . The question is . . . whether they should be given a permanent exemption without giving us a chance to have the commission continue its development of more appropriate rules (for these smaller companies) . . . But they are in the process of doing this . . . I understand the desire of people to help smaller businesses. But at this point it is a license for people who might want to be abusive by guaranteeing them that they will never be audited despite any effort to make an appropriate audit.”
Rep. Garrett (R-MD) spoke in opposition to the amendment. He first noted that “small businesses are not the cause of our current financial situation, but they are the ones who are going to get us out of it.” He then added that the exemption the amendment sought to remove from the bill “does not exempt (these smaller companies from) . . . all auditing requirements.” Garrett then argued that the exemption would ease the regulatory burden on smaller businesses and said: “The hundreds of thousands of dollars that it will cost them to comply with (the regulations that this amendment sought to reimpose) . . . would be much better spent . . . to make sure that we can provide more jobs as we see the joblessness rate rise.”
Rep. Adler (D-NJ) also opposed the amendment. He said there was “clear evidence” that the provision of Sarbanes-Oxley that the amendment would reinstate “has chased companies out of the United States. We know companies that are doing Initial Public Offerings, not in New York, but in London.”
The amendment was defeated by a vote of 153-271. One hundred and fifty-two Democrats, including a majority of the most progressive Members, and one Republican voted “aye”. One hundred and seventy Republicans and one hundred and one Democrats voted “nay”. As a result, language exempting public companies with less than $75 million in market capitalization from the audit of internal controls requirements of the Sarbanes-Oxley Act remained in the financial reform legislation.