By Douglas Gillison
WASHINGTON (Reuters) -Wall Street’s top regulator will on Wednesday consider a policy change that could allow companies going public to force shareholders to resolve disputes in private arbitration rather than through court litigation, in a major shift that could weaken investor rights.
The Securities and Exchange Commission has a long-standing unwritten rule that companies looking to make their Wall Street debuts cannot tuck language into their charters and bylaws requiring shareholders to bring claims of false statements or fraud through confidential, case-by-case arbitration.
On Wednesday, the agency’s top officials will vote on whether to issue a statement on that policy, according to a public notice, which did not provide more details on the scope of the potential changes.
Corporate interest groups and Republicans have long complained about what they see as the frivolous filing of shareholder class action suits, and often advocate for the use of mandatory arbitration to reduce the amount of litigation.
Consumer advocates and plaintiffs lawyers say court action helps hold companies to account, gives small investors the chance to recover damages they otherwise couldn’t, and gives the public access to evidence and legal reasoning that helps build case law.
Ann Lipton, a former class action litigator now at the University of Colorado law school, said the potential change would be damaging to the public interest, noting law suits can expose corporate misconduct among other things.
“It halts all development of the law and it halts all insight into what companies are really doing.”
During President Donald Trump’s previous administration, the agency considered the change but ultimately took no action. The issue first gained prominence in 2012 when the SEC signaled it would oppose an IPO planned by the private equity fund Carlyle Group, which sought to require future shareholders to resolve disputes in arbitration.
Senator Elizabeth Warren, the top Democrat on the Senate Banking Committee, released a letter she wrote to the SEC expressing concern about the potential change.
In a separate matter on Wednesday, the SEC is also due to consider whether to extend for a second time the deadline for private investment funds to comply with Biden-era regulations requiring enhanced disclosures.
(Reporting by Douglas Gillison in Washington; Editing by Chizu Nomiyama )
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