Now their ADRs trade over-the-counter at OTC Markets

These Stocks Sidestep Sarbanes-Oxley Idiocies

This story appears in the January 21, 2013 issue of Forbes.

You can make a statement for economic liberty and build your retirement account at the same time. Buy American Depositary Receipts in these companies: Allianz, AXA, BASF, Danone, Publicis Groupe and Wolseley.

Besides being large and European, the six have this in common: They are refugees of an oppressive regime. By investing in them you would be casting a vote for freedom. You will also get the benefit of the savings they’re getting these days on lawyer and accountant bills.

The regime in question is the Sarbanes-Oxley Act of 2002. Our six courageous corporations escaped over the border by delisting their shares from the New York Stock Exchange. Now their ADRs trade over-the-counter at OTC Markets, where they are exempt from the law.


Do all these declarations reduce chicanery in the corner office? If you think they do, then you probably think those “Drug-Free School Zone” signs peppering the sidewalk reduce pot use by teenagers.

The law also requires corporations to undergo expensive audits that duplicate the audits they were getting already. This provides employment for accountants, the same profession that failed to uncover the cooked books at Enron and WorldCom. It raises audit costs by 74%, according to a study by Baruch College professors Aloke Ghosh and Robert Pawlewicz.

A foreign corporation can opt out of not only Sarbox but also the voluminous filing demands of the Securities & Exchange Commission. All told, the savings for a big firm fleeing a U.S. exchange listing might run to $10 million a year, says Timothy Ryan, a managing director at OTC Markets.

All the complexities of the SEC and Sarbox do not make Wall Street a safe place. Those crooked Chinese companies that the cops got to too late? They were SEC-registered firms.

To qualify for liberation from U.S. paper shufflers a foreign firm must establish that its shares mostly trade overseas. That’s easily true of a company like Allianz, the insurer headquartered in Munich. Germans do their Allianz trading in Frankfurt, as do big U.S. institutions.

That leaves the Allianz ADR, which trades in dollars and pays dividends in dollars, for small U.S. investors avoiding the complications of currency conversion. The Allianz ADR sees volume averaging 278,000 shares a day.

Escapees from the U.S. regulatory regime do more than reduce their paperwork costs. With the help of a 2010 U.S. Supreme Court decision they also put themselves a little further out of the reach of rapacious securities litigators. These are the folks who sue every time a stock moves up and then down. Ostensibly the litigation is on behalf of investors. In reality it’s just a way for lawyers to pick their pockets.

It can’t be any surprise that legitimate corporations like Allianz avoid the U.S. legal system when the option is available. In the past nine years the number of ADRs listed on exchanges has fallen from 413 to 337, while the number of unlisted ADRs has doubled to 2,233.

It would be interesting to see what would happen if domestic corporations had the same ability to opt out of Sarbox. Imagine a system that permitted you, the investor, to decide whether to put your money into a company that did the Sarbox dance or into a company that didn’t.

We are unlikely to get any such freedom. It would conflict with the notion of 535 people on Capitol Hill that they are the masters of the universe.

Pending the arrival of economic liberty on our shores, broaden your horizons. You should have 10% of your equity portfolio in Europe, despite that continent’s recession.

Allianz (AZSEY, 14) is mostly a property/casualty company but also has a thriving business selling investment products in North America. AXA (AXAHY, 18) is a French insurer with a controlling stake in U.S. money manager AllianceBernstein. BASF (BASFY, 96) makes commodity chemicals. Danone (DANOY, 13) makes yogurt. Publicis (PUBGY, 15) places ads. Wolseley (WOSYD, 4.7) wholesales plumbing supplies.