(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 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
"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
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
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
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
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
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
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
(Reporting By Sarah N. Lynch; Editing by Gerald E. McCormick)