CEI Fellow Testifies On Sarbanes-Oxley and Dodd-Frank “Unhappy” Anniversaries

CEI Fellow Testifies On Sarbanes-Oxley and Dodd-Frank “Unhappy” Anniversaries

Berlau Blasts Laws, Praises Bipartisan Regulatory Relief Such as JOBS Act
July 27, 2012

Washington, D.C., July 27, 2012 – As two purported financial “reform” laws mark their anniversaries this July, CEI’s John Berlau testified two times this week that there is little reason for celebration. On Tuesday and Thursday, before subcommittees of the House Financial Services Committee, Berlau bemoaned for entrepreneurs, investors and the economy the second anniversary of the Dodd-Frank Act -- signed into law by President Obama July 21 -- and the 10th anniversary of the Sarbanes-Oxley Act (SOX) – signed into law by President George W. Bush on July 29.

These laws, Berlau testified, shackle investors and entrepreneurs without achieving much benefit at detecting fraud. At the same time, Berlau praised bipartisan efforts at regulatory relief, such as the recently enacted Jumpstart Our Business Startups (JOBS) Act and the just-introduced Consumer Credit Access, Innovation, and Modernization Act.

"Up until a few months ago, I and many entrepreneurs and investors were not exactly in a mood for celebration in looking forward to SOX’s big 10," Berlau testified Thursday at the hearing on SOX anniversary at the Subcommittee on Capital Markets and Government Sponsored Enterprises. “But then this House, the Senate, and President Obama pleasantly surprised me with a powerful first step towards SOX reform and relief. In April, President Obama signed, after it overwhelmingly passed this House and this subcommittee, the Jumpstart Our Business Startups (JOBS) Act."

Among other things, the JOBS Act creates a five-year "on-ramp" for firms going public that have market caps of less than $700 million and annual revenues of less than $1 billion in which they are exempt from the Sarbanes-Oxley internal control mandates, costly provisions of Dodd-Frank that specifically apply to public companies, and other burdensome regulations. Berlau argued that while much more needed to be done in terms of wholesale repeal of provisions from SOX and Dodd-Frank, the limited relief in the JOBS Act already appears to be reversing the long term decline in U.S. initial public offerings.

Berlau noted that at least 46 companies have filed to go public under the JOBS Act on-ramp deregulatory provision. Among these are prominent firms such as travel booking site Kayak and discount retailer Five Below. In contrast to the Facebook initial public offering, which was too large to utilize JOBS Act relief, these IPOs have so far performed well, bringing investors share price gains.

Berlau cited the Obama administration’s Council on Jobs and Competitiveness noting of research showing the strong connection between IPOs and job growth, and the fact that smaller IPOs allow ordinary investors to grow wealthy with the companies. “The JOBS Act is a big improvement, but there is so much more that can be done to nurture job growth and innovation at small and large public companies and to lift barriers to more firms going public,” he concluded.

On Tuesday, in testimony before Subcommittee on Financial Institutions and Consumer Credit, Berlau praised the Consumer Credit Access, Innovation, and Modernization Act (H.R. 6139), sponsored by Reps. Blaine Luetkemeyer (R-Mo.) and Joe Baca (D-Calif.). This bill would allow nonbank lenders to receive optional federal charters, as banks have been able to do for 150 years, from the Office of the Comptroller of the Currency.

After satisfying disclosure and transparency requirements to receive the federal charters, lenders could offer small loans across state lines not subject to interest rate caps. “Creating this option for these creditors,” Berlau told the subcommittee “would extend a healthy source of credit to underserved consumers and small businesses without putting a dime of taxpayer dollars at risk.”

In both hearings, Berlau stressed the need to “liberate to stimulate” and CEI Vice President Wayne Crews’ observation that grass doesn’t need to be taught to grow, the rocks need to be removed. In Thursday’s hearing, Berlau stood his deregulatory ground as Rep. Jim Himes (D-Conn.) directly confronted him on this analogy, saying he’s never seen a blade of grass with investors. Extending the analogy, Berlau said that the “garden” should be tended by investors and entrepreneurs, with government only stepping in to prevent fraudulent seeds.

Webcast of 7-24 hearing http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=303376 and Berlau’s written testimony

Webcast of 7-26 hearing http://financialservices.house.gov/Calendar/EventSingle.aspx?EventID=303879 and Berlau’s written testimony