THE FREE AND CLEAR PRESS

[thepennyking]

CEO COUNCIL LOBBIES FOR EXEMPTIONS FOR SMALL CAPS

As thought leaders in the micro-capitalization market, your opinions are very important to us in crafting our advocacy programs.



When it looked as though 75% of all OTC-BB companies were going to find themselves on the Pink Sheets because of NASDAQ s BBX plan, we stepped up to the plate and voiced your opinions to the SEC. It was through our collective effort that millions of dollars in shareholder value was saved.



Now we are faced with an even bigger battle. Over-regulation of small business has a direct and tangible effect on our nation s economy. Its time for us to voice our opinions again, only this time we have to be louder, stronger and more focused then ever before.



Please take a moment to read the letter below that I sent to Rick Renzi, a friend of small business in Congress from Arizona who has offered to help us lobby Congress and the White House for common sense small business reforms.



This is the basis for our lobbying effort in Washington DC later in the week. We urgently need your assistance in building this summary into a full White Paper that will get this issue the exposure it needs.



I would appreciate any information, comments or statistics you can provide me for incorporation into the final paper.



Sincerely,

Steve Crane

CEO Council



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KEVIN MESSNER, CHIEF OF STAFF

CONGRESSMAN RICK RENZI (R-AZ)



Dear Kevin:



Jack Wynn asked me to give you a brief overview of the positions we will be taking at the April 1st meeting in Washington DC.



The Small Business Administration (SBA) recently reported that small companies create more than half of new jobs in the U.S. economy. A companion 2003 SBA study also found that small companies were a major source of technological innovation. Small businesses are clearly vital for economic growth, and are essential agents of change in a market economy.



A major difficulty facing small business is obtaining equity capital to achieve positive cash flow. The core difficulty that small business faces in pursuit of equity financing is not investor indisposition, but a fundamental failure of one-size-fits-all securities regulations to adapt to modern market realities.



We need to completely rebuild the regulatory system to create a Right-Sized Regulatory Environment for Small Business Issuers to allow them to access capital and grow while protecting their investors.

A common sense approach is needed and the first step required is a handful of Small Business Issuer exemptions to the Sarbanes-Oxley laws.


The SBA estimates that micro-cap firms face imbedded regulatory costs of $7,000 per employee versus $4,500 for large cap firms. We in the small business trenches know this imbalance is substantially greater. Costs for legal, accounting, and other top-tier-driven requirements are often greater than the benefits derived from the small amounts of equity capital that micro-cap issuers receive. Excessive regulatory commands like Sarbanes-Oxley have resulted in a misallocation of capital that rations local business investment opportunities and frustrates economic development.


Despite the good intent of Sarbanes-Oxley, certain of its requirements will be so onerous and costly for Small Business Issuers as to render compliance impossible. The pure reality of this situation is that many Small Business Issuers will opt out of the reporting system rather than attempt to comply with these regulations. History has shown that Small Business Issuers lose about 80% of their market capitalizations after de-listing from a regulated environment. So the bottom line on Sarbanes-Oxley, at least as it relates to Small Business Issuers, will be less regulation, reduced investor protections and the resulting loss of investment value. One need not have a Harvard MBA to follow this domino s path and the potential effect on our nation s economy.



Our recommendations are as follows:


Exemption #1 - Section 203 Audit Partner Rotation.
Independent certified public accountants that audit Small Business Issuers are themselves small businesses with typically one principal that performs audits. Audit costs will skyrocket if the issuer has to use a new accounting firm every five years. This law will also discourage accountants from offering audit services to Small Business Issuers. Small Business Issuers and their auditors must be exempt from Section 203 compliance.

Exemption #2 Section 301 Audit Committee.
It is completely out of the realm of financial possibility for Small Business Issuers to comply with this section. Even if the independent audit committee consisted of one individual, the cost to the company would exceed $100,000 per year because of the complexity, responsibility and liability faced by the independent director. Since the Section states that the company is not able to pay any audit committee member as a consultant, then this cost could very easily increase by a factor of two or more. Add the cost of Directors and Officers insurance (which have at least tripled since 2001) and the result is a cost that exceeds the yearly earnings of 90% of all OTC companies. Small Business Issuers must be exempt from Section 301 compliance.

Exemption #3 Section 404 Internal Controls.
This section will require small companies to hire an experienced accounting firm, in addition to their auditor, to do the necessary work so the accountant can give a 404 opinion. Again the cost and burden is so onerous that it will be impossible for 90% of all OTC companies to comply with this section. Small Business Issuers must be exempt from Section 404 compliance.

Exemption #4 Section 407 Financial Expert. See our argument for Exemption #2 and double the cost. At least. The biggest question is What financial expert would be willing to take on this responsibility for a Small Business Issuer? Small Business Issuers must be exempt from Section 407 compliance.


A common-sense second step would be to require the SEC to be more sensitive to the unique needs of Small Business Issuers. In the words of the famous comic -- (We) can t get no respect. Elected officials in government seem to be much more understanding of the importance of the small business community during election years and afterwards, well, it is business as usual. Small Business Issuers get one day a year to voice their opinions to the SEC and nothing seems to come from that day except additional regulation. Despite the SEC s public statements to the contrary, most advocates find the SEC s position to be almost adversarial to Small Business Issuers.



The SBA Office of Advocacy needs to be empowered to oversee the SEC s activities relating to Small Business Issuers.



Reg. Fair administered by the SBA does not allow the SBA Office of Advocacy to impose the same small business regulatory review process on commissions like the SEC or entities that it has empowered like the NASD as it does federal agencies. A very important policy change is needed to extend the Reg. Fair review process to the SEC and the NASD and exchanges as it relates to improving regulatory regimes that affect small business issuers, investors and market participants.



The most recent examples are: the SBA Office of Advocacy hiding behind the fact that they were not authorized to engage with NASDAQ, the NASD or the SEC as it related to the negative impact of the (ill-fated) BBX Exchange which would have caused OTC-BB company investors to lose millions of investment dollars when those companies were forced onto the Pink Sheets. Another is the SBA Office of Advocacy failing to engage with the SEC and NASD regarding the SEC Forum Recommendation to develop a Finders Licensing program.



In summation, the policy of adding regulatory costs without commensurate benefits has caused the US micro-cap market to become less transparent and more uncertain and this creates the greater risk of systemic failure. Sophisticated investors, issuers, and market intermediaries are looking for a solution. A new regulatory regime is needed for Small Business Issuers.



We believe that this can be accomplished through cooperation between the Small Business Issuer Community and our elected officials, and we see the meeting on April 1st as a positive first step in this process. I look forward to meeting with you and Rep. Renzi, and to discussing this agenda in detail at the meeting.



Thank you,



Steven Crane

CEO CorpHQ Inc.

(OTC:COHQ)

Redondo Beach, CA

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THE CEO COUNCIL

Director

Chairman - Political Action Committee

http://www.ceocouncil.net

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