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Foreign Firms Seek To Escape The Clutches Of Sarbanes-Oxley

by Glen Shapiro, LawAndTax-News.com, New York

21 September 2004

Citing the example of German e-commerce software firm, Intershop Communications, the Wall Street Journal on Monday reported that many overseas firms listed in the United States are now seeking to withdraw from the US market in order to escape the cumbersome and expensive requirements imposed on them by Sarbanes-Oxley.

According to the WSJ, following its listing in the United States in 2000, Intershop reported disappointing results, causing investors to flee. Then, following the introduction of the Sarbanes-Oxley corporate governance act in response to the high profile collapses of firms such as Enron and WorldCom, the German company was forced to find an additional $600,000 per year in accounting and lawyers fees.

In October of last year, Intershop announced plans to withdraw from share trading in the States, and to deregister with the Securities and Exchange Commission. However, according to the WSJ, even the process of extricating itself from the US market was far from straightforward, and it took eight months to satisfy the provisions of the US corporate governance legislation, which states that a firm must have less than 300 US shareholders in order to be permitted to withdraw.

The business daily went on to suggest that the entry into force next year of a new provision which will require company executives and their auditors to sign off on the effectiveness of the internal control systems is likely to prompt more foreign US-listed firms to reconsider participation in the public market.

A spokesman for the SEC told the Wall Street Journal that the regulator is considering making it easier for foreign firms to deregister, although no specific proposals have been put forward at this point.

European industry bodies have reportedly suggested allowing overseas firms to deregister if the percentage of their shares traded in the United States falls below a certain level as a possible solution.

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