Arthur Levitt has an interesting contrarian op-ed in The Wall Street Journal today, making the case that even the smallest companies should comply with Section 404 of Sarbanes-Oxley. This runs counter to the SEC's current position. Levitt notes that the commission's advisory committee on small companies has recommended that businesses with a market cap under $100 million and revenue under $125 million should be exempt from 404 compliance, while businesses with a market cap under $700 million should not be required to have an independent, outside auditor test their internal controls.
"While the advisory committee is well-intentioned, I fear that these proposed changes will harm, not help, small companies," writes Levitt, who served as SEC chairman from 1993 to 2001. He asserts that exempting smaller and microcap companies, which make up 80 percent of all public companies, would undermine the recently renewed trust in our markets. "If these recommendations were implemented, they would make it more difficult for smaller companies to attract capital needed for growth and undermine confidence in the markets," he adds. "Instead of searching for exemptions to the rule, we need to step back and help small businesses improve financial controls, attract capital, and strengthen the very markets critical to their ability to flourish."
In other words, Levitt seemingly suggests to those lobbying the SEC for a lighter hand, investors may have longer memories than you think.