WASHINGTON Two senators introduced legislation on Thursday that would reduce the costs of going public for small and medium-sized companies by exempting them from certain regulatory requirements.
Democrat Charles Schumer and Republican Pat Toomey said the exemptions would end either after five years, when the company reached annual revenues of a $1 billion, or had acquired $700 million in publicly traded shares.
Eligible companies could delay hiring an outside auditor to verify the company's internal controls under the bill and could postpone stockholder votes on executive compensation.
Another provision would require audited financial statements for only two years prior to an initial public offering, instead of the current three years.
"During difficult economic times, it is critical that we give growing innovators the breathing room that they need to access public markets," Schumer said in a statement.
The legislation is part of a flurry of bills moving through the House of Representatives and the Senate that would give growing companies easier access to capital. Lawmakers are trying to strike the right balance between easing regulatory burdens and ensuring that investors are protected from money-raising scams.
Last month, the House passed four bills aimed at making it easier for small companies to raise capital. President Barack Obama has expressed enthusiasm for similar measures.
The Securities and Exchange Commission is separately reviewing its regulations to see if they unduly restrain emerging companies' growth.
But several witnesses at a Senate banking hearing on Thursday expressed concerns that some of the legislative proposals would make investors too vulnerable.
"Without some changes... one of these bills could well be titled 'The Boiler Room Legalization Act of 2011'," said John Coffee, a Columbia University law professor.
He was referring to a bill proposed by Republican Senator Scott Brown to allow crowdfunding -- where investors take small stakes in companies over the internet.
That bill would exempt private companies that used crowdfunding from costly filing requirements, so long as they solicit no more than $1 million annually. Investors could pledge up to $1,000 each.
A similar bill has already passed in the House.
Jack Herstein, president of the North American Securities Administrators Association said at the hearing that small business investment can be a positive economic force.
But he added, "such investment also has the potential to become a costly failure that undermines market health and discipline, and places middle income investors at an extreme risk if done without appropriate oversight."
He said he was particularly concerned that Congress should not bar state regulation of securities offerings.
(Reporting by Alexandra Alper; Editing by Tim Dobbyn)