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NEWARK, N.J.-The Sarbanes-Oxley Act, enacted in 2002 in the wake of corporate scandals that rattled America’s capital markets, was supposed to give more protection to investors. But the higher costs that accompany increased disclosure and stiffened internal controls appear to be driving a growing number of companies to simply withdraw from the major exchanges. Some are going private and others “going dark,” that is, deregistering their stock with the Securities and Exchange Commission (SEC). Instead, their shares are listed on the “Pink Sheets,” an electronic quotation medium for companies not listed on stock exchanges. These companies don’t have to meet listed companies’ disclosure requirements. So instead of providing more information to investors, they provide none. The SEC, concerned about the trend, set up an advisory committee to examine the impact of the Sarbanes-Oxley Act (SOX), which in April recommended that smaller businesses-companies with equity capitalization of about $787 million or less-be exempt from complying with certain SOX provisions. SOX “has significantly increased the costs of SEC reporting, in particular due to its internal-controls requirement,” said Christian Leuz, an accounting professor at the University of Chicago’s Graduate School of Business. He’s a co-author of a paper, “Why Do Firms Go Dark? Causes and Economic Consequences of Voluntary SEC Deregistrations.” As part of the study, Leuz and his team reviewed deregistrations of 484 firms that delisted from a major exchange and went to the Pink Sheets between 1998 and 2004. Of the total, 370 of the delistings occurred between 2002 and 2004. Public companies can generally file for deregistration if they have fewer than 300 shareholders of record, or fewer than 500 holders of record and less than $10 million of assets in each of the prior three years.

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