Lora Bentley spoke with Mallory Factor, chairman of the Free Enterprise Fund. A U.S. district court recently entered summary judgment against the FEF in its lawsuit challenging the constitutionality of the Public Company Accounting Oversight Board and by extension, Sarbanes-Oxley.
Bentley: Why did the Free Enterprise Fund undertake this lawsuit?
Factor: Because the United States of America will be a grimmer, darker, poorer country because of Sarbanes-Oxley. It costs jobs, it's hurting our preeminence in the financial markets arena. Actually, we've lost that preeminence.
Bentley: So are the changes different policy groups have suggested - some of which the SEC is beginning to adopt - not enough?
Factor: No. They're not enough by far. Before Sarbanes-Oxley, we were looking at nine out of 10 of the largest IPOs being done in the United States. After Sarbanes-Oxley.... This past year, 23 out of 24 were done overseas. In the London Stock Exchange presentation, one of the slides they show is that it is a Sarbanes-Oxley free zone.
I believe that the Act was well-intentioned. In fact, I know it was well-intentioned. But as happens in Washington, it became a gross overreaction, in this case to Enron and WorldCom. It actually hurts a lot of companies. A lot of people blame the accounting professionals for what happened in Enron and WorldCom. If that's true, and I'm not saying it is, the greatest beneficiaries of the Act became the accounting professionals. It became a full employment program for accountants.
I have something called my theory of holes. This is what Washington does: When they get themselves into a hole, to get out of it, they try and dig the hole deeper. And that's what they're doing here. The fact is, if Sarbanes-Oxley is so good - in that people feel so much more comfortable ... investing in companies that are Sarbanes-Oxley-compliant, then why not make it optional? [They don't make it optional] because people would not buy those firms. It costs too much. The cost is just astronomical.
Bentley: Given that summary judgment has been entered against the FEF, what direction will the litigation take now?
Factor: We believed all along that this was going to happen, and we had planned that when it did we would appeal. So we're going to the appellate level now. We believe it will ultimately reach the U.S. Supreme Court.
Bentley: What's the plan if you're not successful? Are there other avenues to take toward accomplishing your goal?
Factor: Well, other people are starting to take up the cause. Senator Schumer and Michael Bloomberg wrote a joint op-ed in the Wall Street Journal about how bad Sarbanes-Oxley is. We were the first out there to talk about it, but they now are feeling the effects.