The U.S. Senate is getting harsh new warnings that legislation to ease capital formation goes too far in eliminating investor protections as it readies to take its first votes on Tuesday, March 20, on a package of bills aimed at making it easier to raise capital and launch IPOs.

Meanwhile, Republicans are offering their own warnings, suggesting that the Democrats could be stymieing bipartisan agreement.

"Here is a chance not only to help entrepreneurs build their businesses and create jobs but to show we can work together around here to get things done on a bipartisan basis," Republican Minority Leader Mitch McConnell of Kentucky told the Senate on Thursday. "Unfortunately, some of our friends on the other side do not seem to like that idea very much. First, they tried to even keep us from bringing up this bill for debate. Now we read they are trying to figure out ways to make this overwhelmingly bipartisan bill controversial."

The latest warnings were sounded by Securities and Exchange Commissioner Luis A. Aguilar and AARP, both adding their strong concerns to those expressed earlier by SEC Chairwoman Mary Schapiro and state securities commissioners about the legislation.

"I cannot sit idly by when I see potential legislation that could harm investors," said Aguilar, who was appointed by George W. Bush. "This bill seems to impose tremendous costs and potential harm on investors with little or no corresponding benefit."

AARP in a letter to senators said that "this legislation undermines vital investor protections and threatens market integrity." It urged the Senate to "take a more balanced approach, recognizing both an interest in facilitating access to capital for new and small businesses and in preserving essential regulation."

The comments came as prospects for Senate passage of legislation remain in flux.

The Senate, which is considering the capital formation measure this week, set its first votes for 11 a.m. Tuesday. Those votes will be an attempt to close off debate on several amendments to the House-passed package.

The Senate needs 60 votes to close off debate.

One, sponsored by Sens. Jack Reed, D-R.I.; Carl Levin, D-Mich.; and Mary Landrieu, D-La., would lessen the easings in the House package, substituting changes aimed more directly at small businesses.

Among the changes the senators proposed:

The House bill changes the trigger for full SEC registration from 500 shareholders to 1,000 for most companies and 2,000 shareholders for community banks. The amendment would make it 750 shareholders.

The House bill would create a new category of "emerging growth companies" and give them up to five years to comply with the full FCC registration requirement no matter how many shareholders they have. The House bill says companies with up to $1 billion in revenue and less than $800 million in their public float could qualify. The Senate amendment would limit the exemption to companies with less than $350 million in revenue.

Schapiro, the state securities regulators and Reed, Levin and Landrieu have suggested the House package goes overboard, removing investor protections in ways that could lead to more scams and significantly less investor information.

In his statement, Aguilar expressed similar worries, saying the bill would "have significant detrimental effects." He added that the legislation isn't likely to serve its intended purpose of promoting capital formation.

"The bill rests on faulty premises," he said. "Supporters claim that the bill would improve capital formation by reducing regulator burdens. However, there is significant research to support the conclusion that disclosure requirements and other capital markets regulation enhance, rather than impede capital formation."

He said that because the SEC shareholder registration number is based on holders of stock certificates, and these days a limited number of institutions hold the certificates for many investors, raising the shareholder number to 1,000 could have the effect of allowing many big companies to go "dark" and quit filing any public information.

"A company could have a virtually unlimited number of record shareholders without being subject to disclosure rules of public companies."

He said the "emerging growth companies" section of the House legislation would have the effect of eliminating SEC registration requirements for five years for 98% of IPOs and bring about inconsistent accounting.

He said the legislation "would benefit Wall Street at the expense of Main Street, overriding protections that currently require a separation between research analysts and investment bankers."

On the Senate floor, some Democratic senators issued similar warnings.

Sen. Richard Durbin, D-Ill., said the legislation would reverse 80 years of history of the SEC protecting investors and is an example of legislation passed too quickly.

"Let's not jump on this freight train and watch it as it plows into a barricade. Let's make certain that what we do is thoughtful, that it does engender economic growth but not at the expense of the integrity of America's financial markets," he said.