HLS Professor Hal Scott testified before the U.S. House of Representatives Committee on Small Business today. The hearing was called to examine new rules passed by the Securities and Exchange Commission on May 23 which cut back regulations in Section 404 of the landmark Sarbanes-Oxley corporate accounability law.
"U.S. public markets are clearly becoming less attractive to companies, both foreign and domestic," Scott said in his testimony. "While there are many factors responsible for this development, including better foreign markets and more capital available abroad, our Committee, as well as other studies, has concluded that the cost of U.S. regulation, as well as the prospect of class action lawsuits, has played a significant role. I expect that the new standards will bring down the costs of Section 404, but not as much as it could and should."
It was intially predicted Section 404 would minimally raise costs for the average company, but in the years since implementation, large firms racked up auditing bills in the millions of dollars. Critics like Scott say the recent amendment of these regulations did not go far enough for small businesses.
The Nomura Professor of International Financial Systems, Scott is the director of the Program on International Finance Systems at HLS and the Committee on Capital Markets Regulation, a bi-partisan group of both business and academic leaders.
He is the author of the leading textbook in the field, entitled "International Finance: Transactions, Policy, and Regulation," in addition to several other books, including "Capital Adequacy Beyond Basel: Banking, Securities, and Insurance" and "International Finance: Law and Regulation."
Scott joined the HLS faculty in 1975 and holds a B.A. from the Woodrow Wilson School of Public and International Affairs at Princeton University, an M.A. in political science from Stanford University, and a J.D. from the University of Chicago Law School.