Hal. S. Scott published an article today entitled "Capital Market Regulation Needs an Overhaul" located via this link:

http://www.marketwatch.com/story/hal-s-scott-capital-market-regulation-needs-an-overhaul-2011-04-19

I found this article to be very interesting (especially his comments about company's being "...subject to burdensome public market regulation like Section 404 of the Sarbanes-Oxley Act..." and I have prepared the reply below.  I welcome his feedback and I would welcome an in-person debate if he so desires...

Mr. Scott,

I always appreciate people's views on this issue and sounds like you have some strong opinions. While I appreciate your perspective, I would urge caution with making a blanket statement about the personal motivation of the private sector in this down economy.

In reviewing your article, I believe it is safe to assume you have some experience hearing the cries of executives who are subjected to the ‘…burdensome public market regulation(s)…’  I enjoyed your references and statistics which are plenty but I think your direction is somewhat misguided and only your perspective. There are as many articles as not that claim that Sarbanes-Oxley (SOX) is directly responsible for an upsurge of IPOs in the US and I am certain you are capable of finding those as alternative statistics if you so desired.

My guess is your opinion is the extent of your experience on the topic of ‘burdensome public market regulation(s)’ and thus; your perspective ends there.  I am assuming you have never actually implemented SOX or any of the other market regulations so I’d like to shed some light on the truth of the situation.  

Non-accelerated filers – or those companies who are only ‘subjected’ to Section 404(a) of the Sarbanes-Oxley Act have a 46% higher likelihood of a restatement (Sarah Johnson, CFO.com, December 2, 2009). Non-accelerated filers were granted a permanent reprieve from an external audit review of their internal controls (Section 404(b)) in the form of Section 404(c) in 2010. I see the financial data produced from non-accelerated filers, accelerated filers, non-profits, etc. daily and initial internal control implementations and testing results are often terrifying. I have seen financial data that is blatantly inaccurate, NASDAQ-listed companies who use a paper ledger to support their $100M in annual revenue and who have no systematic general ledger system, support for financial data that has been either thrown away or assumed, segregation of duties that is inadequate and where fraud is rampant (Koss anyone), etc. The list is endless.  Of course, not all companies’ fall into this "scary" category but I have yet to find a company that did not benefit from a SOX 404(a) implementation in some way.  My personal experience has proven that a significant number of public companies have inadequate structure and insufficient accounting talent to properly protect their company from their own accounting mistakes and without SOX and the requirement to double check their numbers and assumptions, their shareholders would have been negatively impacted. This has and can lead to restatements, shareholder lawsuits, management changes, and even accountants and executives being put in jail. I get it, incompetence is incompetence but you are missing the point that the SOX legislation seeks to help formalize accounting procedures, which can facilitate more reliable financial statements and improve internal business processes. This equates to a better and safer investing environment.

Mr. Scott, it would seem that you would not have day-to-day dealings with actual public, private, or non-profit accounting departments.  Not executives, but the actual Controllers or Clerks who are the people generating the numbers that lead to the statistics you so freely published.  I do. Please correct me if I am wrong but I would venture to guess that you haven't spent any time performing a SOX implementation. You may have spent time with the executives of these companies, who I am certain assume that their financials are correct (I see that all the time) and, I am certain you have listened to their cries about the costs and how SOX has only been successful at employing auditors. But let’s be clear, no one made a company go public under duress and making a case to feel sorry for them is ridiculous.  Sure, there are many ways to save money and make things easier for companies which could translate dollars back into the US market but in my humble and respectful opinion, your argument assumes people will do the right thing if you leave them to their own devices.  I only wish we lived in a world like that…

Additionally, I perform compliance work in China regularly and I can assure you that your statement of “Our public markets are increasingly unattractive to foreign issuers…” couldn’t be further from the truth – at least – from actual hand-on experience...