Mandatory Arbitration Provisions: A New Attack On Access To The Courts

Private litigation by institutional investors has always been a crucial complement to regulatory efforts to police the integrity and transparency of the U.S. financial markets. When governmental agencies lack the resources and the political support to aggressively seek out financial fraud, civil suits by institutional investors fill a critical gap in the safety net. To preserve this partnership, the U.S. Securities and Exchange Commission should closely scrutinize efforts by publicly-traded companies to incorporate investor-unfriendly mandatory arbitration provisions in their corporate bylaws.

There can be little doubt about the danger of these provisions, which prevent investors from pursuing recovery on a class-wide basis, thus removing the economic incentive for investors to pursue claims under the federal securities laws. Not surprisingly, these provisions are almost always instituted unilaterally, without consultation with the investors who are the owners of