Senate Democrats Urge SEC’s Clayton to Shun Investor Arbitration

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By Andrew Ramonas

Nearly two dozen Democratic senators want SEC Chairman Jay Clayton to clarify whether he may abandon the agency’s long-standing position against mandatory arbitration clauses in initial public offerings.

Sen. Sherrod Brown (D-Ohio), the Senate Banking Committee’s ranking member, and other senators asked Clayton in a May 3 letter to oppose any ban on shareholder lawsuits amid chatter the Securities and Exchange Commission might be preparing to take up the issue.

Clayton, who has sought to encourage IPOs, hasn’t taken a public position on forced arbitration. He has said the matter is worth discussing, but isn’t a priority for commission action.

“Allowing companies to deprive shareholders of their day in court would be a major blow to investor protection, and investors deserve to know the SEC’s position on this critical issue,” the letter said.

An SEC spokesman declined to comment.

The missive followed other recent letters and remarks from Democratic lawmakers, consumer groups, plaintiffs’ attorneys, and others expressing concern about a potential policy change on shareholders’ class-action lawsuits, which can lead to large settlements against companies.

The Treasury Department, however, is looking for the SEC to explore the issue.

A Treasury report from October called on the commission to study the “various means to reduce costs of securities litigation for issuers in a way that protects investors’ rights and interests, including allowing companies and shareholders to settle disputes through arbitration.”

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To contact the editor responsible for this story: Seth Stern at

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