Nov. 4 (Bloomberg) -- U.S. House lawmakers voted to exempt small businesses from investor-protection rules imposed in the wake of accounting frauds at Enron Corp. and WorldCom Inc., a measure endorsed by the Obama administration.

The House Financial Services Committee voted 37-32 today to spare companies with market values of less than $75 million from audit requirements of the 2002 Sarbanes-Oxley Act. The permanent exemption was added to legislation that would boost funding for the U.S. Securities and Exchange Commission and impose stiffer rules on the brokerage industry. The bill was approved 41-28.

The Obama administration pushed for the amendment, arguing investor-protection rules should be aimed at large companies rather than small businesses that may have difficulty complying with more rigorous audit standards. Democrats including House Financial Services Committee Chairman Barney Frank and U.S. Representative Paul Kanjorski, who heads a capital markets subcommittee, said the measure could harm investor confidence.

Lawmakers in 2002 passed Sarbanes-Oxley, imposing checks on corporate financial statements after meltdowns at Enron and WorldCom shattered investor confidence. The law requires companies to have adequate safeguards to prevent misstatements and ensure employees don’t falsify results. Controls must be scrutinized and assessed by an outside accounting firm.

The SEC has never required compliance for firms with market values below $75 million, providing exemptions dating to 2004. SEC Chairman Mary Schapiro last month granted another reprieve, giving small firms until next year to start paying auditors to scrutinize their internal controls. The measure, if signed into law, would make the exemption permanent.

SEC Budget

The bill would double the SEC’s budget over five years and create a program to pay whistleblowers whose tips lead to successful enforcement actions in securities markets.

It also would authorize the SEC to prohibit mandatory arbitration agreements that bar clients from suing brokers. Under the bill, brokers would join investment advisers in being governed by a fiduciary standard requiring them to put clients’ interests before their own.

The investor bill still must be passed by the House and Senate and signed by the president to become law.

To contact the reporter on this story: Joshua Gallu in Washington at jgallu@bloomberg.net.

Last Updated: November 4, 2009 13:07 EST