In partnership with the Investigative Fund, The Intercept has published a powerful piece calling attention to proposed changes to the securities laws that may keep shareholders from being able to sue corporations that violate the law to shareholders’ detriment. The right to a trial may be replaced with mandatory arbitration agreements that will shunt shareholder lawsuits into private, closed-door arbitration funded by the very corporations alleged to have committed the fraud.
“If proponents of deregulation have their way, people … won’t be able to sue potentially errant companies in the future. Earlier this month, Securities and Exchange Commissioner Hester Peirce told Politico that she ‘absolutely’ thinks that public companies should have the option to require arbitration, which would strip shareholders of their right to bring lawsuits….” Similarly, Ex-SEC Commissioner Michael Piwowar told an audience at the conservative Heritage Foundation last year that he would “encourage” companies to come talk to the SEC about putting mandatory arbitration clauses in their charters, clauses that would preclude litigation in open court when companies cheat their shareholders.
Over the years, major institutional investors such as pension funds and endowments have retrieved billions in compensation after companies were found to have made false or misleading statements leading to investor losses.
As the article notes, a coalition of 133 public advocacy groups has sent a letter with a 50-page white paper to SEC chairman Jay Clayton, arguing that mandatory arbitration of shareholder disputes was bad public policy and contrary to the securities laws. “It appears there is a possibility of a sea change at the Commission” that could result in letting companies use such clauses, said Paul Bland, executive director at Public Justice, at a telephonic press briefing Tuesday afternoon.
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