Co-authored by Kari Hoelting.
On February 16, the House Committee on Financial Services approved H.R. 3606 (the Reopening American Capital Markets to Emerging Growth Companies Act of 2011) and H.R. 2308 (the SEC Regulatory Accountability Act).
H.R. 3606 would exempt “emerging growth companies” from certain requirements under the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), and rules of the Securities and Exchange Commission. A company is deemed an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which it had gross annual revenues in excess of one billion dollars, (ii) the last day of the fiscal year following the fifth anniversary of its equity initial public offering (IPO), and (iii) the date on which it is deemed a “large accelerated filer.” Among other things, emerging growth companies would be exempt from (a) the say-on-pay, say-on-frequency and golden parachute vote requirements of Section 14A(a) and (b) of the Securities Exchange Act of 1934 (the Exchange Act), (b) executive compensation disclosure requirements mandated by Section 14(i) of the Exchange Act and Section 953(b)(1) of the Dodd-Frank Act (the latter being the comparison of median employee compensation to CEO compensation), (c) the requirement imposed by Section 404(b) of Sarbanes-Oxley that requires a company’s auditor to attest to the effectiveness of the company’s internal controls over financial reporting, and (d) the audit firm rotation provisions of Section 103(a)(3) of Sarbanes-Oxley. In addition, Section 7(a) of the Securities Act of 1933 would be amended to allow emerging growth companies to present only two years of audited financial statements in any registration statement filed in connection with an equity IPO. Finally, research reports (as defined) distributed by brokers and dealers about an emerging growth company that is the subject of a proposed public offering, even if a registration statement has not yet been filed, would not constitute an offer for sale or offer to sell, even if the broker or dealer is participating or will participate in the registered offering.
H.R. 2308 would require, among other things, that before issuing a regulation, the SEC clearly identify and assess the significance of the problem to be addressed, utilize the Office of the Chief Economist to assess the costs and benefits of any proposed regulation or order, identify and assess alternatives, and only propose or adopt a regulation or order after determining that the benefits of the regulation justify the costs of the regulation and that the regulation imposes the “least burden” on various constituencies. In addition, the SEC would be required to ensure that regulations are accessible, consistent, written in plain language and easy to understand. Finally, the SEC would be required to periodically review its regulations and orders in effect prior to the enactment of the bill to determine whether any such regulations are outmoded, ineffective, insufficient or excessively burdensome and to modify any such regulations as necessary as a result of such review.
Click here to read H.R. 3606.
Click here to read H.R. 2308.