SEC Investor Advocate Objects To Mandatory Arbitration Of Shareholder Class Actions

SEC Investor Advocate Rick Fleming expressed disapproval of mandatory arbitration provisions that prohibit shareholders from pursuing class actions. These provisions generally require shareholders to pursue claims on an individual basis through arbitration.

In an SEC Speaks program sponsored by the Practising Law Institute, Mr. Fleming responded to several commentators who recommended that U.S. public companies adopt mandatory arbitration provisions in their articles of incorporation or bylaws to avoid the high costs of class action litigation. Mr. Fleming argued that such a view neglects the negative side effects of limiting shareholders' class actions.

Mr. Fleming asserted that the class action mechanism serves a number of beneficial purposes. These include (i) encouraging private enforcement of the securities laws where the SEC's resources are limited, (ii) providing a means of redress for all investors, regardless of their holding size, (iii)