(Corrects shareholder threshold in 19th paragraph to 2,000, a congressional bill summary had wrongly said 1,000)
* Schapiro says bill may scale back too many protections
* SEC's Aguilar also concerned about investor protections
* Schapiro: emerging growth company section too broad
* Says more study needed on shareholder threshold triggers
* Schapiro also raises concerns on crowdfunding
By Sarah N. Lynch
WASHINGTON, March 14 (Reuters) - Two U.S. securities regulators are raising concerns about pending legislation in the U.S. Senate aimed at making it easier for small businesses to raise capital, warning that the measure could erode protections for investors.
"We must balance our responsibility to facilitate capital formation with our obligation to protect investors and our markets," Securities and Exchange Commission Chairman Mary Schapiro wrote in a March 13 letter to the Senate Banking Committee's top Democrat and Republican.
"I believe that there are provisions that should be added or modified to improve investor protections that are worthy of the Senate's consideration."
SEC Commissioner Luis Aguilar, a Democrat, said in an interview on Wednesday that he was also concerned about the bill, and urged lawmakers to tread carefully.
"I share the concerns that many have expressed that the current version of the legislation goes too far in diluting investor protection," he said.
"It is the American public's willingness to invest their hard-earned money that ultimately results in job creation and company expansion. To me, real capital formation requires robust investor protection."
Schapiro's letter and Aguilar's comments come as the U.S. Senate is preparing to vote on a bill with wide bipartisan support that overwhelmingly passed the House last week.
The bill contains a number of provisions aimed at encouraging job growth by making it easier and less costly for companies to raise capital and eventually go public.
One measure would establish a new category of companies called emerging growth companies that have less than $1 billion in annual revenues at the time they register with the SEC.
These companies would be given a so-called "on-ramp" to go public by reducing their regulatory responsibilities for a five-year period.
Another section of the bill would raise the number of shareholders that triggers when companies and smaller banks must start public financial reporting.
A third provision, meanwhile, would pave the way for a new type of capital-raising strategy known as "crowdfunding" that would let investors take small stakes in private start-ups over the Internet.
Schapiro warned that the IPO on-ramp part of the bill is "so broad that it would eliminate important protections for investors in even very large companies" and urged Congress to lower the $1 billion annual revenue threshold.
The bill would also exempt emerging growth companies from a provision in the 2002 Sarbanes-Oxley Act which requires companies to undergo an audit of their internal controls.
Such an exemption is "unwarranted," Schapiro said, noting that smaller companies are already exempt from the internal controls audit and companies that go public also already get two years before they must comply.
Many of the measures included in the jobs bill are areas the SEC has been studying since last year as part of a broad review into outdated securities regulations regarding capital raising.
To assist with the process, the agency established a small business advisory committee. So far, the panel has made several recommendations that closely track various measures in the bill, but it stopped short last month of endorsing crowdfunding, citing fears that it could lead to investment scams.
The SEC has been looking at whether it should raise the number of shareholders of record that trigger a company having to file public financial documents, from 500 under the current regulations.
The bill about to be considered by the Senate would raise the threshold to 2,000 for all companies. Schapiro warned, however, that changing the numbers might be premature.
"At this point, I do not have sufficient data or information to assess whether the thresholds ... are appropriate," Schapiro wrote.
She also urged lawmakers to include more protections for investors in the crowdfunding measure in the bill, saying that the intermediaries who facilitate the offerings should face more regulatory oversight. (Reporting By Sarah N. Lynch; Editing by Gerald E. McCormick)