Sarbanes-Oxley: the Great Republican Overreach Begins

Every movement reaches a point where, emboldened by temporary success, it oversteps its victories, and finally loses the public — an Icarus moment. For the Republicans, though, hubris kicked in early. Health care is stalled, sure, but it’s coming back, and Obama’s approval still hovers in the low 50’s, with no sign of dipping lower.

This, apparently, passes for victory, because Newt Gingrich is moving on. Now’s he has designs on repealing the Sarbanes-Oxley Act, the intensely complicated regulatory regime passed in the wake of the Enron/WorldComm scandals, to stop future scandals before they come, by ensuring disinterested boards, and incentivizing whistleblowing, among others.

Lest we forget, Soxley, as it’s affectionately known, is the very definition of bipartisan reform — it passed with a supermajority in the House, and an astonishing 99-0 vote in the Senate, making it more popular at its passage than the PATRIOT Act. There are academic questions to to whether Soxley is the cheapest way to solve the problems it was drafted towards, but there has never been a question about the need for it, or similar reforms. It takes an academic to question Sarbanes-Oxley’s effectiveness — but it takes a fool to wish for its repeal, with nothing else waiting.

When conservatives, or even libertarians question the necessity of key reforms, it’s often from the comfort of peace, the trouble the bill solved in the far, far distant past. Enron — which is still in litigation, by the way — should remain a vivid reminder that the free market doesn’t always work out the way conservatives imagine, and when it fails, it destroys lives. If we’re going to have a debate about the merits of regulation, please — let it be over Sarbanes-Oxley.



  1. As I recall, isn’t Sarbanes-Oxley also the law requiring businesses to put forward $100 million of their own money before being eligible for an IPO*, thus forever shafting start-ups and stifling innovation in the market? (It’s why no privately-owned small companies go public anymore—who has a $100 million? These days you just pimp yourself to a larger company and hope you get bought out for a good price.)

    *Initial Public Offering, when a private-owned business/corporation first offers its stock to the public for trading.

  2. If you’re talking about the admittedly huge cost of startups, your issue is with the Securities and Exchange Acts, which you’re about 75+ years late for :). I don’t recall any law requiring companies to expressly put up $100M — as in, lose it to the government — but, even if it did, note that there are about a trillion other ways to raise capital without going “public,” as in, on a publicly traded exchange. Current securities laws (Reg D especially) provide for “private placements” and limited public offerings, which are a challenge to navigate, but allow companies to raise somewhere in the tens of millions before even coming to the SEC’s notice. So… stifling innovation? Nah!

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