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| 2002 News and Press Releases |
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HEADLINE:
Sarbanes-Oxley Burdens Small Companies
By: Tamara Loomis
New York Law Journal, Vol. 228; Pg. p. 1, col. 4. December 19, 2002
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EXCERPT: SANDATA Technologies is hardly the kind of company Congress had in mind when it resolved to clean up corporate America in the aftermath of a wave of accounting scandals earlier this year. By all accounts, the 140-employee data processing firm in Port Washington, N.Y., is a good corporate citizen. It has never had anyone question its accounting practices or for that matter any other aspect of the way it does business. Yet the Sarbanes-Oxley Act, which went into effect on Aug. 2, cast a heavy burden on the small public company, which has traded on the Nasdaq for the past 16 years. "They went overboard," said Sandata's chief executive Bert Brodsky, referring to the law's sweeping new regulations. "They penalize you for being a public company." In fact, the situation is bad enough to convince Mr. Brodsky to take his company private. He is not alone. John Aneralla, a spokesman for Disc Graphics, a small high-tech company in Hauppauge, N.Y., said Sarbanes-Oxley "definitely helped confirm the decision" of his company to go private. In the six months since the law's enactment, at least half a dozen other small-cap companies in the New York metropolitan area have announced plans to go private. And according to lawyers for small public companies, many others are considering it. Mr. Brodsky said that he personally knew of "four or five" other firms on Long Island who were thinking about going private. "They don't want to put up with the hassle of being public anymore," he said. Spurred by the mammoth accounting frauds at a handful of the nation's biggest companies, Sarbanes-Oxley is aimed at cracking down on corporate book-cooking by making executives and boards of directors personally responsible for their firms' accounting practices. At first glance, this seems reasonable. But the law does not distinguish among the 14,000 companies that publicly trade their stock, the vast majority of which are small-cap and mid-cap companies. And for those firms, the law could prove prohibitively costly. "Because of Sarbanes-Oxley, it's a lot more expensive to be public now," said Michael King, a partner at Weil, Gotshal & Manges. For big corporations who already have the infrastructure to handle new regulations, compliance costs, although not insignificant, are not going to be a killer, Mr. King said. The story is different for small-cap companies who must hire expensive outside lawyers and accountants to help them comply with the stream of Sarbanes-Oxley regulations coming out of the Securities and Exchange Commission, which is charged with implementing the act. Mr. King said that in many cases, compliance costs, coupled with 100 percent increases in directors and officers insurance - which he directly attributes to Sarbanes-Oxley - could easily shave 15 percent or more off a small company's bottom line. This is no exaggeration. For instance, Sandata's Mr. Brodsky estimated his company spent $400,000 on compliance in the last year. In comparison, in its most recent fiscal year, Sandata's profits came to a paltry $142,000.
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