Start-Ups Slam Into Sarbanes

Bryce Linsenmayer knew Sarbanes-Oxley would affect his work as a corporate attorney. What surprised him was just how it did.

Last year, a client asked Linsenmayer, a partner at Haynes and Boone in Houston, about listing on the London Stock Exchange. Frontera Resources, a Texas-based company exploring for oil in the republic of Georgia, wanted closer access to European investors. But there was another reason driving its desire for a U.K. listing: Frontera was eager to avoid the millions in costs to comply with Sarbanes-Oxley.

As word of Frontera's British IPO spread, Linsenmayer began hearing from other small U.S. companies hoping to debut on the LSE's Alternative Investment Market for small companies. Again and again, Linsenmayer heard that one of the main reasons these start-ups were looking to list abroad was to sidestep Sarbanes-Oxley burdens.

"Sarbanes-Oxley is a huge factor for these companies," says Linsenmayer. "It's front and center in their minds. This is one of the things that could prevent Nasdaq from being a market for emerging companies."

Of the 30 U.S.-based companies that have listed on the AIM, 19 of them debuted last year. And more are in the pipeline: Linsenmayer says he's representing seven companies hoping for an IPO in London this year. Meanwhile, the LSE is canvassing the U.S. to get the word out. A seminar on the AIM that Hayes & Boon arranged with the London exchange last week drew more than 500 attendees.

It's been nearly four years since the Sarbanes-Oxley Act was born, aiming to improve financial disclosure and corporate governance. The House version of the bill was passed in April 2002, followed by a stricter version in the Senate. Following a series of financial frauds at companies such as Enron, Tyco and WorldCom, the stricter version won out.

After nearly four years, the debate is raging over whether the new law is helping or hurting. The Securities and Exchange Commission is considering recommendations from an advisory panel that would spare companies with less than $750 million in market cap from some of the costlier and more onerous provisions.