The SEC has long refused to allow companies to go public with
bylaws or other governing documents that would require shareholders
to arbitrate federal securities law claims against the company. But
there also has been considerable doubt over the SEC’s
position, at least since the late 1980s when the Supreme Court
upheld the enforceability of similar provisions in broker-dealer
customer agreements.
Nevertheless, the SEC has rarely had to defend its position. It
was challenged, albeit somewhat tepidly, in 2012 when a major
private equity firm attempted an initial public offering (IPO) with
mandatory arbitration provisions. The firm quickly resolved to
remove the offending provisions from its governing documents after
facing opposition from the SEC staff as well as certain advocacy
groups and lawmakers.
