On May 23, 2016, the House passed H.R. 4139, the Fostering Innovation Act, by voice vote. The bill had passed the House Financial Services Committee on March 2, 2016.
H.R. 4139 proposes to extend the temporary auditing exemption for emerging growth companies for five years, in order for EGCs to comply with Section 404(b) of the Sarbanes-Oxley Act. This bill serves as a way of alleviating the burdensome costs that smaller public companies incur when having to comply with Section 404(b). This would, in turn, allow these companies to focus their resources on growth, rather than on these compliance costs.
Financial Services Committee Chairman Jeb Hensarling commented on the passing of this and other bills and stated: “I believe most of us would agree that our economy works better for all Americans when small businesses can focus on creating jobs rather than navigating bureaucratic red tape.”
While H.R. 4139 passed with strong bipartisan support, Investor Advocate Rick Fleming had urged members of Congress to vote against it. In a letter to Speaker of the House, Paul Ryan, and to Minority Leader, Nancy Pelosi, Fleming warned that passing H.R. 4139 would “chip away” at the protections set in place by Sarbanes-Oxley, ones set in place as a “second set of eyes” in order to prevent another scandal that would affect American investors. Additionally, Fleming states that H.R. 4139 would further compound the complexity of U.S. securities laws/reporting requirements by creating another category of issuer.