On April 16, 2021, a bill was introduced in the Senate and House that would restrict securities industry broker-dealers and other FINRA registered firms from imposing mandatory arbitration for customer disputes or contractually limiting a customer’s ability to bring suit on a class or consolidated basis.
Named the “Investor Choice Act” (the “Bill”), the Bill would amend the Securities Exchange Act of 1934 in two ways. First, it would prohibit listing a security from any issuer who, in bylaws, contracts, or other governing documents, mandates arbitration of disputes between the issuer and its shareholders. Second, it would make it unlawful for any securities broker or dealer to enter into or extend an agreement with customers that, with respect to future disputes between the parties, mandates arbitration, restricts the customer’s choice of forum for dispute resolution, or restricts a customer’s ability to pursue claims on a class representative, consolidated, or individual basis. The Bill further states that its prohibitions would apply to existing contracts, voiding any provisions in violation of its sections unless arbitration had already been initiated on or before the date of the Bill’s enactment.
In its official findings, the Bill states that “[i]ssuers, brokers, dealers, and investment advisers hold powerful advantages over investors, and mandatory arbitration clauses, including contracts that force investors to submit claims to arbitration or waive the right of investors to participate in a class action lawsuit, leverage those advantages to severely restrict the ability of defrauded investors to seek redress.” The Bill maintains that market stability and retail investor participation depends on investors’ confidence in a fair and equitable recourse, and consequently “[i]nvestors should be free to choose arbitration to resolve disputes if they judge that arbitration truly offers them the best opportunity to efficiently and fairly settle disputes and to pursue remedies in court should they view that option as superior to arbitration.”
The Bill was introduced in the Senate by Sen. Jeff Merkley (D-Ore.) and in the House by Rep. Bill Foster (D-Ill.). An additional twelve Democratic lawmakers co-signed the bill, including Sen. Elizabeth Warren (D-Mass.), Sen. Sheldon Whitehouse (D-R.I.), Rep. Carolyn Maloney (D-N.Y.), and Rep. Gregory Meeks (D-N.Y.).
Troutman Pepper frequently represents financial services institutions such as broker-dealers and their associated persons in FINRA arbitration disputes and regulatory matters involving customer/investor, employment, and intra-industry claims.