Arbitration Adversity: Class Action Campaign Condemns US SEC Policy Shift
14 October 2025
Class action lawyers in the US are mounting a collective push back against a change in the US Securities and Exchange Commission’s (SEC) policy towards forced shareholder arbitration clauses, which they argue could have a severe, detrimental effect on shareholder rights.
The SEC last month reversed its decades-old policy on the implementation of forced shareholder arbitration clauses along a party-line vote, without public notice or solicitation for comment on the issue. The commission issued a “policy statement” that the presence of forced shareholder arbitration clauses will not be considered by the SEC in determining whether a company’s registration statement should become effective.
The change means that companies launching initial public offerings (IPOs) are now able to require investors to resolve disputes through private arbitration rather than by securities class-action lawsuits in federal courts. The decision was approved in a 3–1 vote, with the three Republican commissioners supporting the change, with the one Democratic commissioner the sole dissenting voice.
US law firm Pomerantz – which describes itself as the “oldest law firm in the world dedicated to representing defrauded investors” and as having “champion[ed] investor rights for over 85 years” – has issued a document explaining why the SEC shift in policy should be of concern to institutional investors.
The document described the SEC’s shift in stance as a “radical policy change that will shield fraudulent companies from public accountability, put investors at risk of massive losses, depress shareholder value and stock prices, and undermine confidence in the US capital markets”. It added that the “stark reversal of SEC policy will inject massive uncertainty into US markets, creating a more volatile environment for investors, shareholders, and corporations”.
The law firm has also written a letter for concerned parties to send to the Chair of the SEC Paul Atkins, which the organisation is urging investors and companies to send by Wednesday 15 October. The letter has been created to “express strong opposition” to its recent policy reversal that allows companies seeking to go public to include provisions in their governing documents that attempt to force shareholders into arbitration in the event those companies violate the federal securities laws.
The letter stated that the SEC has made this “drastic change” without listening to the perspectives of investors and corporations in any public comment process which “would have revealed widespread opposition to this policy change”.
The law firm’s information document stated that SEC has resisted corporate overtures to accelerate IPOs of companies with forced shareholder arbitration clauses for decades, with the SEC considering such clauses to be “sufficiently against the public interest that their inclusion in a registration statement prevented it from becoming effective on the accelerated timeline necessary for a successful IPO”. It added that the commission has historically recognised the importance of private enforcement of the securities laws to hold companies to account and recover billions of dollars to investors while US markets have been “transparent, highly efficient, and performed extraordinarily well”.
“This new policy change will lead to more fraud and wrongdoing, less information for institutional investors, less ability to recover losses, less trust in corporate disclosures, less confidence in the US capital markets, and a decrease in shareholder value [and] must be rejected,” the document read. It added that this is “just the first salvo in gutting investor protection and shareholder rights”.
The SEC has previously held a long-standing opposition to forced arbitration causes, with the topic being discussed as far back as the 1960s. Between 2009 and 2019, several public companies rejected minority shareholder proposals to put forced arbitration provisions into bylaws, with the SEC backing the decision of those companies, including Alaska Air, Johnson & Johnson and Pfizer.
The SEC notably opposed mandatory arbitration in IPO documents in a 2012 case involving the Carlyle Group, with the company forced to drop an arbitration clause before going public after the regulator indicated it would not approve the filing. In 2018, during Donald Trump’s first term as President, a proposal to revisit the SEC’s policy was rejected by then Chair Jay Clayton, while both Democrat and Republican state treasurers opposed revisiting the policy, as did major institutional investors.
Meanwhile, in 2020, Intuit proffered a shareholder proposal that would have forced all shareholder cases claiming violations of federal securities laws into individual forced arbitration, thereby stripping investors of the right to class relief in a court of law. The vote received less than 2.5% shareholder support, with shareholders including Vanguard and NY Common Fund voting against the proposal, illustrating continued investor opposition on the topic.
“It is our strongly held view as long-term investors that this radical departure from the Commission’s decades of precedent will destabilize confidence in US markets because companies that violate federal securities laws will be shielded from public accountability, putting investments at risk and stripping investors of their well-established rights to recover losses on a class-wide basis in a proceeding that provides them with full due process,” the letter read.
The document warned that forced shareholder arbitration is “not a sufficient, transparent, or efficient forum for defrauded investors to vindicate their rights or recoup their losses, nor is it an adequate venue for corporations to establish their liability defences under federal and state law”. It added that forced arbitrations are not public, lack consistent procedures or precedential opinions, preclude collective or class action and have no appeals or juries.
The law firm argues that shareholder legal actions are “critical” for all investors to recoup losses from fraud and robust shareholder enforcement is vital to the value and stability of capital markets.
It also warned that there could be “severe consequences” for corporations that adopt forced arbitration provisions, stating that “investors do not want these clauses—and corporations should not either”, with corporations adopting these provisions facing “immediate, protracted litigation”.
“While any company that includes a forced shareholder arbitration provision in its governing documents for its IPO filing will face significant and novel legal challenges that will result in substantial increased risk and expense, it is critical that companies know their investors do not support this change,” the document stated. “Corporations and their executives who understand they are signing on for the potential for numerous, costly, and time-consuming individual arbitrations, with no mechanism for class-wide resolution, also will not welcome this change.”
This year, the SEC has moved to weaken shareholder rights in several ways. As covered in Minerva Analytics’ Shareholder Proposal Voting Trends Report 2025 released last month, even before Atkins was formally appointed as Chair, the SEC rescinded Staff Legal Bulletin (SLB) 14L, replacing it with new guidance in SLB 14M. The new guidance reinstated prior staff guidance on micromanagement, permitting shareholder proposals to be excluded more easily by companies. This change saw a surge in ‘no action’ appeals, preventing proposals being voted on by shareholders at the AGMs of investee companies.
Since Atkins took over as Chair of the SEC, the 14a-8 rule has been amended, introducing more stringent requirements over the amount of investment required to file and the support needed to resubmit proposals, as reported by Minerva Analytics. Atkins himself has previously voiced concerns about the “
Under Atkins’ stewardship, the SEC has reportedly considered relaxing rules on executive pay following a roundtable on exec compensation disclosure requirements held in June, as reported by Minerva Analytics. Atkins also took aim at the International Financial Reporting Standards Foundation and the European Union’s corporate sustainability laws last month when visiting Europe, as reported by Minerva Analytics.
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Last Updated: 14 October 2025