404(b): Barney to the Rescue?

No, not the big purple dinosaur, in this case its Barney Frank (although some may argue the difference, that is not the topic here), but more on Mr. Frank in a minute.  Back in March this year I wrote an article updating the status of Section 404(b) of Sarbanes-Oxley as it applies to small public companies.  As a reminder, Rule 404(b) requires ’34 Act reporting companies to get an attestation from their independent auditors regarding the effectiveness of the company’s internal control over financial reporting.   Without reciting the entire article (you can read it here: http://www.thelebrechtgroup.com/index.php/publications/tlg-publications/184-smaller-reporting-companies-and-section-404b-where-are-we) the article discussed the U.S. House Financial Services Committee’s vote to approve the “Investor Protection Act of 2009” in November 2009, which if approved by Congress and signed by the President would provide a permanent exemption from Section 404(b) for small public companies (those with less than $75 million in market capitalization).  In that article I concluded, despite my belief that 404(b) was a terrible burden and any benefits not worth the costs for smaller public companies, that I did not believe there was sufficient time for Congress to act the President to sign a bill exempting small public companies from 404(b) before they would be forced to comply (fiscal years after June 15, 2010).  However, much to my surprise, my conclusion may have been completely wrong.  In May 2010, the Senate passed a version of the Investor Protection Act that did not include a permanent exemption from 404(b) for small public companies.  That is obviously not the part that might make my conclusion in the article incorrect.  However, currently a House subcommittee and Senate subcommittee are meeting to hammer out the differences between their two versions of the Investor Protection Act to try and get something in front of the President to sign (allegedly by July 4, 2010).  Most believe the bill will pass, the big question is what provisions will make the final bill?   This brings us back to Barney and friends.  While it is anyone’s guess as to whether the final bill will include the 404(b) exemption for small public companies, the best indication as to whether it will has come from Barney Frank.  Mr. Frank, the chairman of the House Financial Services Committee, recently stated that he expected the final version of the bill will contain the permanent exemption.  If Mr. Frank, a regular critic of Wall Street, believes the permanent exemption will be in the final version of the bill, then I believe there is hope for small public companies.  While companies should move forward with putting 404(b) compliance measures in place until word that the permanent exemption is signed into law.  Keep a close eye to this blog and/or our newsletter, The Isolated Offering, for the latest developments.