A House panel voted Wednesday to permanently exempt more than half of all publicly traded companies from a seven-year-old post-Enron measure designed to prevent fraud.
The vote came in the form of an amendment, offered by Reps. Scott Garrett (R-N.J.) and John Adler (D-N.J.), to the Investor Protection Act of 2009, a bill otherwise intended to protect investors from fraud and manipulation.
The amendment permanently exempts companies with a market value less than $75 million from a requirement mandating that outside auditors assess a firm's internal procedures to protect itself against fraud, waste and accounting errors. All publicly traded companies are required to comply, though smaller firms have been exempted for the last several years over cost concerns.
Smaller companies argue that the audits' cost is too high, and that money could be better used elsewhere, like hiring more employees. Investor advocates say the audits are particularly needed for smaller companies because they're more prone to fraud, due to the lack of oversight.
Securities and Exchange Commission Chairman Mary Schapiro said last month that smaller firms would be required to comply beginning next year. She also wrote a letter to Rep. Paul Kanjorski, a Pennsylvania Democrat, expressing concern about the efforts to undo provisions of the post-Enron law, the Sarbanes-Oxley Act.
The White House supported the change. Adler said Tuesday that he had discussed his amendment with Chief of Staff Rahm Emanuel three times.
The Huffington Post first reported the amendments and the ensuing battle. Adler's original amendment called for a temporary exemption from the audit requirement for four out of five public companies -- while the SEC worked to develop "less stringent requirements."
The Garrett-Adler amendment passed 37-32 despite vigorous opposition from consumer and investor groups, including unions, pension funds, and institutional investors. Business interests supported it.
Of the 42 Democrats on the House Financial Services Committee, 10 voted in support of the measure: Adler, Joe Baca of California, Steve Driehaus of Ohio, Suzanne Kosmas of Florida, Gary Peters of Michigan, Dan Maffei of New York, Melissa L. Bean and Bill Foster of Illinois, Travis Childers of Mississippi, and Walt Minnick of Idaho. The remaining Democrats -- including committee Chairman Barney Frank -- composed the 32 dissenting votes.
Former SEC Chairman Arthur Levitt was among those opposed to the amendment, telling the Huffington Post: "This is something the Republicans could never have accomplished, and what a bitter irony it is that the Democrats...are emasculating the best piece of legislation of the past 20 years."
The bill to which the amendment is attached passed. It will now be sent to the House floor.