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Monday, November 2, 2009

Small Companies Have a Right to Privacy: Criticizing a SOX Exemption for Small Issuers

There are scattered reports of a movement afoot to exempt certain "small issuers" from certain audit requirements of Sarbanes-Oxley until regulators can agree on a way to make audit compliance less costly to the companies.

Allowing issuers to avoid more rigorous compliance will just shift the burden of compliance (or noncompliance) to investors. This is not a good idea.

Some of these small companies are barely "going concerns" and are publicly-reporting for no reason other than to allow their owners a way to monetize their investment while still running the company (as opposed to having to sell it for its real, and probably much lower, value). In fact, sme of these issuers are little more than a corporate shell designed to dupe the investing public into buying into a business plan (a.k.a pipe dream).

Here's a radical notion: not every company should go public.   After all, we should uphold the right to privacy, that is, that certain companies absolutely should stay private. 

Message to small companies: if you don't want to run your business long term, and can't afford a reputable auditor of your company for the protection of the same shareholders to whom you owe fiduciary duties, then you have no business being public.    These are the type of companies that often end up trading on the "pink sheets" and having their small share floats manipulated by all sorts of shady people.  

Of course, the Big Board-listed companies never engage in such micro-crap chicanery.   Never.

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