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October 7, 2025
Insights
SEC Arbitration Shift Is at Odds With Fraud Deterrence
October 7, 2025
Insights
SEC Arbitration Shift Is at Odds With Fraud Deterrence
October 7, 2025
Insights
In the timely article “SEC Arbitration Shift Is at Odds With Fraud Deterrence,” published by Law360, Partner Lauren A. Ormsbee and Associate Jacqueline E. Lacovara offer an in-depth analysis of the SEC’s recent policy statement greenlighting the inclusion of mandatory issuer-investor arbitration provisions in initial public offering registration statements. The authors discuss the impacts this abrupt policy change will have to market transparency, including diminishing investor confidence and removing the powerful impact of public lawsuits that have been critical to making the U.S. securities markets a model of fairness over the past 90 years.
Launched by SEC Chair Paul Atkins in response to the decline of IPOs in last decade, the policy change would take legal battles private, resulting in a series of costly arbitrations which could result in greater damages and legal fees. While the concept of forced arbitration of issuer-investor securities claims is not new, the article points to this policy statement as marking a significant shift in the SEC’s historically assumed position, noting that only a year ago the SEC “affirmed the crucial role played by private enforcement of the federal securities laws in this nation’s courts when the commission joined in a pair of amicus briefs before the U.S. Supreme Court explaining that the interest of the U.S. was aligned with ‘meritorious private securities actions,’ which ‘are an essential supplement to criminal prosecutions and civil enforcement actions brought by the Department of Justice and the SEC.’”
The article further contends that forced arbitration is not a panacea to the decline of IPOs, and that, if a company goes public and it is later revealed the company and its executives mislead investors leading to significant damages, “the SEC will be seen to have encouraged shareholders to hand over nearly 100 years of judicial protection and jurisprudence, while gaining nothing in value in return and losing much. That is counter to the public interest, in every sense.”
Asserting that the purpose of the Securities Act is to protect investors, the article details the SEC’s long-held resistance to mandatory shareholder arbitration. While the SEC’s previous skepticism has “historically resulted in the exclusion of forced arbitration clauses,” public companies and institutional investors alike have also historically opposed forced arbitration, noting their concerns regarding due process associated with arbitration: “forced arbitration clauses are de facto waivers of the right to participate in any collective action—waivers ‘specifically designed to prevent class actions.’”
The article additionally highlights SEC Commissioner Caroline Crenshaw’s opposition to forced arbitration, marked by her sole “no” vote against the issuance of the SEC’s official policy statement the September 2025 meeting. Crenshaw characterized the statement as a move that harms investors and is “‘another way to stack the deck against investors.’” While the SEC’s decision to open the door to forced arbitration does not mean that any corporation will actually use this tool, the article contends that “any company seeking to impose forced arbitration will likely face considerable investor opposition and potential legal challenges,” and that “companies should be wary of adopting forced arbitration.”
In the timely article “SEC Arbitration Shift Is at Odds With Fraud Deterrence,” published by Law360, Partner Lauren A. Ormsbee and Associate Jacqueline E. Lacovara offer an in-depth analysis of the SEC’s recent policy statement greenlighting the inclusion of mandatory issuer-investor arbitration provisions in initial public offering registration statements. The authors discuss the impacts this abrupt policy change will have to market transparency, including diminishing investor confidence and removing the powerful impact of public lawsuits that have been critical to making the U.S. securities markets a model of fairness over the past 90 years.
Launched by SEC Chair Paul Atkins in response to the decline of IPOs in last decade, the policy change would take legal battles private, resulting in a series of costly arbitrations which could result in greater damages and legal fees. While the concept of forced arbitration of issuer-investor securities claims is not new, the article points to this policy statement as marking a significant shift in the SEC’s historically assumed position, noting that only a year ago the SEC “affirmed the crucial role played by private enforcement of the federal securities laws in this nation’s courts when the commission joined in a pair of amicus briefs before the U.S. Supreme Court explaining that the interest of the U.S. was aligned with ‘meritorious private securities actions,’ which ‘are an essential supplement to criminal prosecutions and civil enforcement actions brought by the Department of Justice and the SEC.’”
The article further contends that forced arbitration is not a panacea to the decline of IPOs, and that, if a company goes public and it is later revealed the company and its executives mislead investors leading to significant damages, “the SEC will be seen to have encouraged shareholders to hand over nearly 100 years of judicial protection and jurisprudence, while gaining nothing in value in return and losing much. That is counter to the public interest, in every sense.”
Asserting that the purpose of the Securities Act is to protect investors, the article details the SEC’s long-held resistance to mandatory shareholder arbitration. While the SEC’s previous skepticism has “historically resulted in the exclusion of forced arbitration clauses,” public companies and institutional investors alike have also historically opposed forced arbitration, noting their concerns regarding due process associated with arbitration: “forced arbitration clauses are de facto waivers of the right to participate in any collective action—waivers ‘specifically designed to prevent class actions.’”
The article additionally highlights SEC Commissioner Caroline Crenshaw’s opposition to forced arbitration, marked by her sole “no” vote against the issuance of the SEC’s official policy statement the September 2025 meeting. Crenshaw characterized the statement as a move that harms investors and is “‘another way to stack the deck against investors.’” While the SEC’s decision to open the door to forced arbitration does not mean that any corporation will actually use this tool, the article contends that “any company seeking to impose forced arbitration will likely face considerable investor opposition and potential legal challenges,” and that “companies should be wary of adopting forced arbitration.”
In the timely article “SEC Arbitration Shift Is at Odds With Fraud Deterrence,” published by Law360, Partner Lauren A. Ormsbee and Associate Jacqueline E. Lacovara offer an in-depth analysis of the SEC’s recent policy statement greenlighting the inclusion of mandatory issuer-investor arbitration provisions in initial public offering registration statements. The authors discuss the impacts this abrupt policy change will have to market transparency, including diminishing investor confidence and removing the powerful impact of public lawsuits that have been critical to making the U.S. securities markets a model of fairness over the past 90 years.
Launched by SEC Chair Paul Atkins in response to the decline of IPOs in last decade, the policy change would take legal battles private, resulting in a series of costly arbitrations which could result in greater damages and legal fees. While the concept of forced arbitration of issuer-investor securities claims is not new, the article points to this policy statement as marking a significant shift in the SEC’s historically assumed position, noting that only a year ago the SEC “affirmed the crucial role played by private enforcement of the federal securities laws in this nation’s courts when the commission joined in a pair of amicus briefs before the U.S. Supreme Court explaining that the interest of the U.S. was aligned with ‘meritorious private securities actions,’ which ‘are an essential supplement to criminal prosecutions and civil enforcement actions brought by the Department of Justice and the SEC.’”
The article further contends that forced arbitration is not a panacea to the decline of IPOs, and that, if a company goes public and it is later revealed the company and its executives mislead investors leading to significant damages, “the SEC will be seen to have encouraged shareholders to hand over nearly 100 years of judicial protection and jurisprudence, while gaining nothing in value in return and losing much. That is counter to the public interest, in every sense.”
Asserting that the purpose of the Securities Act is to protect investors, the article details the SEC’s long-held resistance to mandatory shareholder arbitration. While the SEC’s previous skepticism has “historically resulted in the exclusion of forced arbitration clauses,” public companies and institutional investors alike have also historically opposed forced arbitration, noting their concerns regarding due process associated with arbitration: “forced arbitration clauses are de facto waivers of the right to participate in any collective action—waivers ‘specifically designed to prevent class actions.’”
The article additionally highlights SEC Commissioner Caroline Crenshaw’s opposition to forced arbitration, marked by her sole “no” vote against the issuance of the SEC’s official policy statement the September 2025 meeting. Crenshaw characterized the statement as a move that harms investors and is “‘another way to stack the deck against investors.’” While the SEC’s decision to open the door to forced arbitration does not mean that any corporation will actually use this tool, the article contends that “any company seeking to impose forced arbitration will likely face considerable investor opposition and potential legal challenges,” and that “companies should be wary of adopting forced arbitration.”
