"The AIM? What's the AIM?" Karis, 58, replied.

The Alternative Investment Market was founded by the London Stock Exchange in 1995. It's becoming a haven for US entrepreneurs who wish to sidestep Sarbanes-Oxley Act provisions that require more rigorous audits and certification of financial controls.

London-based AIM listed 1,501 stocks with a total market value of £78.5bn ($147bn), a more than fourfold jump from 2003, as of the end of April. Last year, IPOs on AIM raised almost $10bn, close to the $12.3 bn generated on the Nasdaq Stock Market.

"A year ago, most of our companies were thinking about Nasdaq offerings, but today most are looking at AIM, " says Allan Ferguson, a Bostonbased partner at 3i Group, a venture capital and buyout firm.

As AIM has surged, Nasdaq has acquired 25.1% of AIM's parent, the LSE, for £766.3m this year. NYSE Group in May proposed an 8bn merger with Parisbased Euronext after money raised in US. IPOs last year slid 22% to $56 bn.

By comparison, IPOs in France almost tripled the proceeds of 2004, according to data compiled by Bloomberg.

"They realise that the growth potential is outside of the US, " says Bryce Linsenmayer, a lawyer at Dallas-based Haynes & Boone LLP that's advising eight US companies about to go public on AIM.

Goldman Sachs and other securities firms are jockeying to advise incoming AIM companies.

In the past 18 months, the banks have registered with the exchange under an unusual regulatory scheme that requires them to vouch for the financial propriety of their clients. Credit Suisse Group is one of 90 firms that also serve as brokers, promoting the same AIM stocks they're responsible for watchdogging.

"It makes it a market ripe for scandal, " says Richard Ferlauto, director of investment policy at the American Federation of State, County and Municipal Employees, a union whose members have $1 trillion invested in public pension funds.

"There is a clear conflict of interest."

Martin Graham, head of AIM, bristles at the suggestion that the rules are lax. "That's nonsense, " Graham, 44, says.

"Intelligent rather than overburdensome regulation is what we seek." Credit Suisse declined to comment.

AIM is attracting young companies as the New York-based Nasdaq, the springboard for small technology firms in the 1990s, evolves into a marketplace ruled by aging behemoths like Microsoft Corp.

The average market value of a Nasdaq-traded company increased to $1.2bn in 2005 from $750m in 2000, according to Canaccord Adams, a Vancouver-based investment bank. That compares with $71m for an AIM company last year.

Nasdaq has become less hospitable to small companies because of rising regulatory costs, says Ted Schlein, a partner at Menlo Park, Californiabased venture capital firm Kleiner Perkins Caufield & Byers.

"The idea of a $150 million to $200 million IPO doesn't exist anymore, so you start to look at foreign markets, " Schlein says.

William O'Brien, senior vice president for new listings at Nasdaq, rejects the claim that it's ceding small-cap companies to AIM. He says companies that list on AIM should be raising money from venture capitalists.

AIM is benefiting from Sarbanes-Oxley, a 2002 law that toughened accounting rules following fraud scandals at Enron and WorldCom.

The rules tripled accounting costs as a percentage of revenue for companies with market values of less than $785m, a Securities and Exchange Commission advisory panel says.

"I like Sarbanes-Oxley, " Graham says. "We're sucking companies in."

Entelos, a Foster City, California-based firm that had almost $13m in sales in 2005, found that the law's compliance costs would run to $2m if it listed on the Nasdaq. That's what the firm spends to create a new computer model to help drug researchers develop treatments for diseases like diabetes. "I had a decision to make: Pay auditors or build a new model, " Karis says. He chose the latter.

Firms applying for AIM listings don't file financial reports with exchange officials or regulators, as they do in the US.

Instead, a company appoints an investment bank or brokerage as its "nominated adviser" to guarantee the accuracy of its financial records.

AIM companies also must appoint a broker to underwrite their offering, provide research and promote their stocks.

Often, the nominated adviser plays this role too.

Using London-based Evolution Group as broker and adviser, Entelos went public on AIM on 12 April , raising $20m. Its stock traded at 84.5p on 1 June after opening at 89.5p.