Sen. Elizabeth Warren (D-Mass) and other democrats have reportedly issued a stern warning to the Securities and Exchange Commission (SEC) against any potential policy change that could limit shareholders’ ability to sue companies.
Lawmakers Warn SEC Over Its Secretive Arbitration Plan
The SEC is set to discuss on Wednesday the possibility of allowing listed companies to enforce arbitration of shareholder claims, thereby moving disputes out of the public eye. However, this move has sparked concerns among prominent Democrats, including Warren, the ranking member of the Senate banking committee, and Sen. Jack Reed (D-RI), as reported by the Financial Times.
In a letter to SEC Chair Paul Atkins, Warren and Reed voiced concerns about the possible policy change, warning that it could remove an important tool for investors and let wrongdoing go unchecked.
Warren and Reed wrote, “This would be a significant mistake, putting investors and markets at risk.” Shareholders would face a secretive system with confidentiality rules, a lack of public accountability for wrongdoers, and no legal precedents for guidance, they added.
SEC Faces Pushback Over Mandatory Arbitration In IPO Bylaws
Historically, the SEC has blocked companies from going public if their bylaws contain mandatory arbitration clauses. This has been contentious, with executives and directors highlighting the high costs of securities litigation and potential abuse in class action lawsuits, while shareholder advocates have consistently opposed mandatory arbitration.
However, shareholder advocates have consistently opposed mandatory arbitration, arguing that it favors companies and undermines investor rights. The SEC under the previous Republican chair, Jay Clayton, considered this issue in 2018 but ultimately decided not to prioritize it.
Warren Probes Companies Over New Trump Policies
The SEC’s potential policy shift on mandatory arbitration has been a long-standing debate. On September 10, the SEC announced an open meeting to consider this policy. The issue of mandatory arbitration provisions was discussed during the first Trump Administration, but no changes were made to the policy at that time, as per a Public Company Advisory Blog article.
Meanwhile, Warren, a prominent figure in financial regulation, has been active in challenging policies that could potentially harm investors’ rights. She, along with other Democratic senators, recently questioned major banks, including JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC), about the potential impact of the Trump administration’s rollback of a financial regulation on overdraft fees.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
