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The D & O Diary: SOX Consequences: London Is Calling and Companies Are “Going Dark”

The D & O Diary: SOX Consequences: London Is Calling and Companies Are “Going Dark”

by Rick Turoczy on August 9, 2006

As detailed in this prior D & O Diary post, the Sarbanes-Oxley Act has imposed enormous compliance burdens and expense on companies whose shares are traded on the U.S. securities exchanges. It is hardly surprising that, according to an August 8, 2006 Wall Street Journal article (subscription required), U.S. exchanges have lost ground in luring foreign listings. The article states that “[n]ine of the world’s ten largest non-U.S. IPOs listed in New York in 2000; last year, 24 of the largest 25 chose other markets, with London the leading alternative.” Sources cited in the article suggest that the U.S. regulatory burden is the principal reason for the shift, but that high U.S. underwriting fees (which may be as much as double as those assessed in London) may be a contributing factor.

The aversion to the U.S. exchanges is not limited to non-U.S companies, nor is it limited to companies contemplating their public debut. According to an August 3, 2006 New Jersey Law Journal article entitled “Companies ‘Go Dark’ to Avoid SOX Compliance,” the high cost and burden of Sarbanes-Oxley compliance “appear to be driving of companies to simply withdraw from the major exchanges.” Some companies are going private, and others are “going dark” by deregistering their stock with the SEC. Shares of companies that go dark are listed on the “Pink Sheets,” an electronic quotation medium for companies not listed on stock exchanges.

The D & O Diary: SOX Consequences: London Is Calling and Companies Are “Going Dark”

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