SEC Jay Clayton on forced arbitration clauses in IPOs

In a comprehensive letter to Congresswoman Carolyn Maloney (D-NY) obtained by Yahoo Finance, SEC Chair Jay Clayton gave shareholder advocates causes for both relief and concern about whether the agency will make it harder for investors to sue public companies.

Clayton clarified how the agency would handle whether corporations would be allowed to IPO with arbitration clauses preventing shareholders from suing the company in court — long considered a standard part of shareholder rights.

In the letter, Clayton notes that both he and the SEC’s Division of Corporate Finance believe that the decision about whether a public company can prevent its shareholders from suing in the case of fraud should be decided by the full Commission “in a measured and deliberative manner,” instead of just by the Division of Corporate Finance or another party.

Clayton stressed multiple times that “this issue is not a priority for me,” but laid out how the issue would come up.

“If we are presented with this issue in the context of a registered IPO of a US company, I would expect that any decision would involve Commission action (and not be made through delegated authority) and that the Commission would give the issue full consideration in a measured and deliberative manner. Such a review would take into account various considerations, including developments in applicable law and any other relevant considerations.”

Source: SEC Jay Clayton on forced arbitration clauses in IPOs

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