Let's Rewrite Securities Law for FacebookS

Two senators introduced legislation to help Facebook further evade a 47-year-old SEC disclosure rule and take on a slew of new investors. Because that's the problem in America lately, you see: Corporations are too well regulated, and we know too much about the inner workings of large, heavily capitalized institutions.

The legislation from Pat Toomey (R-Pa.) and Tom Carper (D-Del.) amends a federal rule dating to 1964 that caps the number of investors in a large company at 500, after which point the company must begin to regularly disclose its earnings and other financial data. Toomey and Carper would raise the limit to 2000 investors, and exclude from the count any shareholders who are also employees. This would "effectively eliminate" the regulation, Fortune reports, and possibly allow Facebook to delay an initial public offering many observers were expecting to come in 2012. The law would not be specific to Facebook, of course; other companies like Zynga might also use it to delay their IPOs.

So what's the harm in that? Well, as the New York Times' Dealbook once put it, the 500 shareholder rule was originally enacted "to ensure that investors in significant companies had sufficient information to make their investment decisions... [and] to curb a private trading market which had sprung up on the over-the-counter market." In other words, this rule was designed to stop swindlers. These swindlers should only, in theory, be able to dupe wealthy, "accredited" investors; small fry would still be kept out of non public companies under Toomey and Carper's rollback. But how long will it take for Wall Street wizards and sweatshop overlords to route around that little regulatory barrier?