Press Release

The shareholder forced arbitration policy issued by the Securities and Exchange Commission (SEC) on September 17, 2025, is a radical policy change that will shield companies that commit fraud from public accountability, put investors at risk of massive losses, depress shareholder value and stock prices, and undermine confidence in our capital markets. ⁱ

This stark reversal from the Commission’s well-established, decades-old policy will inject chaos into U.S. markets, creating a more volatile environment for investors, shareholders, and businesses – and any company that includes a forced arbitration provision in its IPO filing will face legal challenges that will delay the offering indefinitely and result in significant risk and expense.

Despite SEC Chairman Paul Atkins’ claims that the SEC has not weighed in on forced arbitration since the 1980s, over the course of multiple decades, the Commission has made clear on numerous occasions that the practice violates the federal securities laws and is bad for investors: 

• In the late 1980s, the SEC blocked a stock sale by Franklin First Financial Corp., a Wilkes Barre, Pennsylvania, savings and loan association that had included a forced arbitration provision in its corporate charter, according to Carl Schneider, a former securities attorney who represented the thrift. ⁱⁱ  
• In 1990, when a corporation planning its IPO sought to include forced arbitration provisions in its corporate governance documents, the SEC objected, saying, “It would be contrary to the public interest to require investors who want to participate in the nation’s equity markets to waive access to a judicial forum for vindication of federal or state law rights, where such a waiver is made through a corporate charter rather than through an individual investor’s decision.” ⁱⁱⁱ  
• In 2008, Alaska Air Group, Inc. asked the SEC for no-action relief to support its decision to exclude a forced arbitration proposal from its proxy materials – the SEC granted the no-action relief. ^iv 
• During the 2011–2012 proxy season, the SEC granted two companies, Gannett Co., Inc. and Pfizer Inc., the no-action relief they sought in response to their desire to exclude a forced arbitration proposal from proxy materials. The SEC staff’s decision was based on its conclusion “that there appears to be some basis for your view that implementation of the proposal would cause the company to violate the federal securities laws.” ^v 
• In 2012, the Carlyle Group submitted an IPO registration statement which included forced arbitration within its corporate bylaws. The SEC indicated it would not accelerate the effective date for a registration statement of an applicant with a forced arbitration clause in its bylaws. After the Carlyle Group withdrew the forced arbitration provision, SEC spokesman John Nester said in a statement, “We are pleased they have announced that they plan to remove this provision. We advised them that the staff was not prepared to clear the filing with the mandatory arbitration provision included.” ^vi    
• In 2018, multiple statements about the use of forced arbitration were made by SEC officials:
  • In a February 2018 speech, former Commissioner Robert Jackson spoke about efforts to include forced arbitration provisions in IPOs, “stripping shareholders of their right to their day in court – and radically altering the balance between shareholders and corporate insiders,” and saying, “if we’re going to take away investors’ right to their day in court, I hope my colleagues on the commission can agree that we should, at least, do so in the light of day.”
  • According to a February 2018 report in the Wall Street Journal, Commissioner Jackson told a New York investment conference that the SEC should not let a company restrict possible class action lawsuits by its shareholders in an IPO, saying that such a move should only follow a rulemaking process with public comments that studies the costs to investors of forcing disputes into private arbitration hearings. 
  • Former SEC Investor Advocate Rick Fleming also spoke to the harms of efforts to force shareholders into arbitration and forego class action lawsuits in a February 2018 speech. ^vii  
• In 2019, Johnson & Johnson, Inc. asked the SEC for no-action relief to exclude a shareholder proposal on shareholder forced arbitration—the SEC granted the no-action relief. ^viii
• Just this year, the very same SEC took the position that FINRA rules that exempt class action lawsuits from FINRA arbitration are consistent with Supreme Court jurisprudence. ^ix

Proposals for shareholder forced arbitration raise serious legal issues under both the Securities Act of 1933 and the Securities Exchange Act of 1934:

• Forced arbitration provisions likely violate the Securities Act’s “anti-waiver” provision, which provides that “[a]ny condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this title or of the rules and regulations of the Commission shall be void." (Securities Act of 1933, 15 U.S.C. § 77n (2018)). 
• The SEC’s policy change raises issues with respect to provisions of federal securities law which grants jurisdiction over federal investor-protection issues to district courts; thus, any provision forcing shareholders into arbitration as opposed to giving them the option of filing a lawsuit in court is likely to be found contrary to federal law.
• The SEC’s policy reversal also raises issues with respect to Section 29(a) of the Exchange Act which further provides that “[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of this title or any rule or regulation thereunder, or of any rule of a self-regulatory organization, shall be void” (Securities Exchange Act of 1934, §78cc (2018)).
• Additional Supreme Court guidance states that “anti-waiver” provisions are violated if a provision “weakens [investors’] ability to recover under the Exchange Act” (Shearson/American Express, Inc. v. McMahon, 482 US 220, 230 (1987)). 

Investors have opposed forced shareholder arbitration:

• In 2020, Intuit Inc. had a shareholder proposal that would have forced all shareholder cases into individual forced arbitration and denied class relief. When the vote was called, the proposal received less than 2.5% of shareholder support. x
  • Major institutional investors declined to support the proposal, including the New York State Common Retirement Fund – a large institutional investor – which filed an exempt solicitation opposing it. ^xi 
  • The Council for Institutional Investors also submitted a letter expressing opposition to mandatory shareholder arbitration clauses and agreeing with Intuit Board's recommendation of a vote against the proposal forcing shareholder claims into arbitration. ^xii  
• A similar threat occurred in late 2018, when the same activist shareholder, who would later file the Intuit proposal, filed a bylaw proposal to force all Johnson & Johnson shareholder cases into arbitration. J&J and its counsel at Skadden Arps argued in its letter to the SEC that “Johnson & Johnson believes that the adoption of a bylaw amendment described in the proposal would be contrary to the public policy interests underlying the federal securities laws and would cause Johnson & Johnson to violate federal law.” ^xiii

Key stakeholders oppose forced arbitration because they are negatively impacted:

• Institutional shareholders, public pension funds, former SEC commissioners, proxy advisories, consumer groups, state securities regulators, and publicly traded corporations and their legal counsel have all opposed efforts to force investors into private, secret arbitrations.
• While not all institutional investors bring litigation to combat securities fraud and recoup their investment, passive investors benefit from litigation recoveries. They are able to recover funds they lost from securities fraud, and also benefit from a more transparent market where fraud and misconduct is punished. If corporations adopt mandatory arbitration this benefit would be eliminated to the detriment of all investors. 
• Corporations will be negatively impacted, as those that adopt these provisions will face immediate, protracted litigation, including more costly or denied D&O insurance. 
  • If arbitration provisions are upheld, companies will face dozens of arbitrations, with their executives exposed to multiple and endless individual arbitration, discovery, depositions, and trials. There is no mechanism to consolidate the arbitrations into one class action procedure. They will proceed as individual and independent cases. 

Forced arbitration eliminates a key investor tool and negatively impacts capital markets:

• Private actions are critical for all investors to recoup losses from fraud—and without access to the federal courts, recoveries for fraud for absent class members will be far less and the burden of arbitration will be far greater for investors and corporations alike.
  • Since the enactment of PSLRA, investors, including absent class members, have recovered approximately $100 billion from securities class actions.^xiv 
  • Private lawsuits in major corporate frauds like WorldCom, Enron, and Tyco led to more than $19.4 billion for investors, but the SEC obtained only $1.75 billion.^xv 
  • During the financial crisis, private actions recovered over $7.2 billion as to major frauds (Bank of America, Citigroup, Washington Mutual, Lehman Brothers, Wilmington Trust, Wachovia, Merrill Lynch, and others).^xvi The SEC obtained only approximately $1.3 billion from these defendants.^xvii SEC enforcement alone cannot cover this gap.  
• Robust private enforcement is critical to the well-being of our capital markets, as less deterrence means less transparency, and therefore less stability and trust.
  • Institutional investors will be able to rely less on the integrity of issuer disclosures.
  • U.S. capital markets’ international reputation—for stable and predictable rules accompanied by robust accountability—will suffer, making them less attractive. 

Chairman Atkins misrepresented the application of state law in his statements about the new SEC policy and went on to pressure the state of Delaware to undermine investor protection through changes to its corporate law: 

• In Atkins’ statements on September 17, he noted that a recent change in state law would make these provisions unenforceable under Delaware state law, but failed to acknowledge that most states, and thus most Fortune 500 companies, follow Delaware law for state corporate law considerations. 
• At the Weinberg Center for Corporate Governance 25th Anniversary Gala, Atkins pushed Delaware to consider amending its corporate code to permit forced arbitration and institute loser pays fee shifting provisions. Delaware, through its judicial branch, has been a leader in developing dependable, transparent, and fair corporate law. 
• Atkins’ push in Delaware will destroy the confidence that issuers and investors alike have placed in Delaware’s legal system and corporate code. This effort is particularly misplaced because it is at odds with federalism concerns and it is beyond the SEC’s purview to regulate matters of state corporate law.
• Atkins' push in Delaware also is operating under the misguided premise that Delaware may change its laws to allow for forced arbitration in federal securities cases only, leaving the Chancery Court to continue to hear shareholder disputes. In reality, any such change to Delaware law raises risk that efforts to protect Chancery Court litigation will be preempted by the Federal Arbitration Act.

SEC Policy Change to Gut Shareholder Rights: What They're Saying

ⁱ Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b)(2011) establishes a private right of action by investors to bring a lawsuit against an issuer for fraudulent or deceitful acts and statements in the sale of securities. Section 29(a) of the Securities Exchange Act of 1934, 15 U.S.C. §78cc(2011) provides that any condition, stipulation, or provision binding any person to waive compliance with any provision of this chapter shall be void.
ⁱⁱ https://www.treasuryandrisk.com/2012/02/03/carlyle-drops-class-action-ban/?slreturn=20210419141318.  
ⁱⁱⁱ Thomas L. Riesenberg, Commentary Arbitration and Corporate Governance: A Reply to Carl W. Schneider, 8 INSIGHTS 2 (Aug. 1990).
^iv Letter from carmen Moncada-terry, Sec, to Alaska Air group, inc., Mar. 5, 2009, available at https://www.sec.gov/Archives/edgar/vprr/0903/09038703.pdf (granting relief on the basis of that the proposal was included with others, thus violating the one proposal standard).
^v Letter from Mark Vilardo, office of the chief counsel, division of corp. Finance, Sec, to Gannett Co., Inc., Feb. 22, 2012, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2012/2donaldvuchetich022212-14a8.pdf; see also letter from Sirimal r. Mukerjee, Office of the Chief Counsel, Division of Corp. Finance, Sec, to Pfizer Inc., Feb. 22, 2012, available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2012/donaldvuchetich022212-14a8.pdf.  
^vi https://www.insurancejournal.com/news/national/2012/02/06/234231.htm).
^vii https://www.sec.gov/newsroom/speeches-statements/fleming-sec-speaks-mandatory-arbitration.
^viii Letter available at https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2019/dorisbehrjohnson021119-14a8.pdf (“On February 11, 2019, the SEC’s Division of Corporation Finance issued a no-action letter to Johnson & Johnson, stating that it would not recommend enforcement action if the company excluded from its proxy statement a shareholder proposal relating to mandatory arbitration of federal securities law claims”).
^ix https://www.law360.com/articles/2366058/thrivent-challenges-sec-over-finra-arbitration-rules; see SEC brief in Thrivent v SEC, USCA Case No. 25-1047, Sept. 15, 2025. 
^x https://www.sec.gov/ix?doc=/Archives/edgar/data/896878/000089687820000020/a8- kshellshmtg01232020.htm. 
^xi https://www.sec.gov/Archives/edgar/data/896878/000121465920000241/p19200px14a6g.htm.
^xii https://www.cii.org/Files/issues_and_advocacy/correspondence/2020/January%209%202020%20Letter%20to%20Intuit%20Inc.%20Board%20LN.docx%20(final).pdf.
^xiii https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2018/dorisbehr121118-14a8-incoming.pdf.
^xiv The Top 100 U.S. Settlements of All Time, ISS: Securities Class Action Services, (2017), available at: https://www.issgovernance.com/file/publications/SCAS-Top-100-US-Settlements-31Dec2016.pdf
^xv Tyco SEC Settlement Fair Fund: http://www.tycosecsettlement.com/ ($55.8 million settlement); Enron SEC Settlement Fair Fund:http://enronvictimtrust.com/ ($570 million); WorldCom SEC Settlement Press Release: http://www.sec.gov/news/press/2003-81.htm ($750 million); Bank of America SEC Fair Fund: http://bankofamericafairfund.com/ ($375 million); Global Crossing SEC Settlement Press Release: http://www.sec.gov/litigation/litreleases/lr19179.htm ($300,000).
In re: Tyco International, Ltd., Securities Litigation, U.S. District Court, District of New Hampshire, 02-266 ($3.2 billion settlement); In re: Enron Corporation Securities Litigation, U.S. District Court, Southern District of Texas, 01-3624($7.2 billion settlement); In re: WorldCom, Inc. Securities Litigation, U.S. District Court, Southern District of New York, 02-3288 ($6.1 billion); In re: Bank of America Corp. Securities, Derivative, and Employee Retirement Income Security Act (ERISA) Litigation, U.S. District Court, Southern District of New York, 09-2058 ($2.4 billion settlement); In re: Global Crossing Ltd. Securities Litigation, U.S. District Court, Southern District of New York, 02-910 ($447.8 million settlement).
^xvi Bank of America - ISS SCAS, The Top 100 U.S. Class Action Settlements Of All-Time, As Of December 31, 2024, pg. 7, at https://www.iss-scas.com/the-top-100-settlements-2024/ ; Lehman Brothers – Id. at 8; Citigroup Bonds - Id. at 8; Wachovia - Id. at 8; Bear Stearns - Id. at 8; Merrill Lynch - Id. at 9; JPMorgan - Id. at 10; Washington Mutual - Id. at 11; Wilmington Trust - Id. at 11; Morgan Stanley Pass-Through - In re Morgan Stanley Mortg. Pass-Through Certificates Litig., No. 09-cv-2137 (S.D.N.Y. Dec. 19, 2014).
^xvii Bank of America ($150M); Bank of America ($234M); Bear Stearns ($222.415M) (Noting that the figure above represents Bear Stearns' portion of the settlement); JPMorgan Acceptance Corp. ($151M); Morgan Stanley RMBS ($275M); New Century ($1.5M); Wilmington Trust ($16M); Wells Fargo RMBS ($6.58M).