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Small Firms Get More Time On Sarbanes-Oxley Rules

By Carrie Johnson
Washington Post Staff Writer
Thursday, September 22, 2005

The Securities and Exchange Commission yesterday gave small companies one more year to comply with costly rules that require them to assess the adequacy of their financial controls.

The 5 to 0 vote marked the first public meeting chaired by the agency's new leader, former Republican lawmaker Christopher Cox. It was also the second time the commission has approved a grace period for small businesses, which complain they have fewer resources to undergo the expensive reviews.

The meeting, which lasted nearly three hours, underscored the SEC's attempts to balance the need for investor-friendly regulation with the expense the rules impose on industry.

A small-business advisory group created by the SEC had pushed for a delay in the control rules mandated by the Sarbanes-Oxley Act. Under the plan, public companies with a market capitalization of less than $75 million will have until July 2007 to review their financial controls.

Also yesterday, the SEC agreed to tighten deadlines for the largest public companies to release their financial reports at year-end. Businesses with public market capitalization of more than $700 million must file annual reports within 60 days of their fiscal year-end, down from 75 days. The plan will be released for public comment and must be approved by a final vote before it takes effect.

Separately, the agency voted 5 to 0 to issue a proposal that would describe in greater detail the ways mutual fund investment advisers could use investors' money to pay for market research and support.

The proposal would make clear that commissions could be used only to pay for advice, analysis and reports with intellectual or informational content. Cox said the plan was designed to cut back on practices of "sometimes breathtaking audacity" in which money managers used so-called soft-dollar fees to cover club dues, rent, telephone service and entertainment expenses.

The SEC has been trying to improve transparency in the mutual fund industry after a series of scandals exposed abusive trading practices. The proposal released yesterday, subject to a 30-day comment period, would amend language dating back nearly three decades that offered money managers a "safe harbor" for advisers who shunt a portion of their commissions to pay for reasonable services related to brokerage and research.

The meeting was mostly devoid of the bickering that characterized the final months of former SEC chairman William H. Donaldson's tenure. Donaldson drew barbs from Republican legislators for casting his vote with the agency's two Democrats on several controversial issues.

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