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SEC Considers Allowing Forced Arbitration to Ban Securities Class Actions

Meyer Wilson

The SEC is considering a ban on class-action lawsuits which would prevent investors from seeking financial damages for securities fraud.

Under President Trump's agenda, the Securities Exchange Commission (SEC) is considering forced arbitration instead of class-action lawsuits for investor disputes, which would jeopardize the rights and best interests of investors. Up until now, the SEC has allowed investors to sue financial and investment firms in a court of law as a protection against investment fraud and securities violations. If investors were deceived or misled by companies selling securities through initial public offerings (IPOs), investors could come together to bring a class-action lawsuit for damages.

Will Arbitration Replace Class-Action Lawsuits?

For decades, class-action lawsuits have helped investors recover billions of dollars lost to investment and securities fraud schemes. Many investors were cheated out of large amounts of money from retirement and securities investments, pension funds, IRAs and 401(k) accounts. In the mid-2000s, there were a significant number of well-publicized securities fraud cases in the U.S. Companies including Bank of America, Enron, Tyco, and WorldCom cheated investors out of billions of dollars. In those cases, SEC enforcement actions recovered $1.8 billion in fees and penalties. However, investors who sued companies under private litigation recovered $19.4 billion, over 10 times the amount recovered by government actions.

In a recent speech, Michael Piwowar, one of President Trump’s current SEC picks, urged corporations to ban class-action lawsuits by investors. If a ban occurs, consumers who suffer substantial financial losses will no longer have the benefit of current SEC investment protections that help them recover their money. The SEC has expressed serious concerns regarding any violations of securities laws that could harm investors, while the U.S. Chamber of Commerce argues that class-action lawsuits hurt the economy by imposing huge legal costs on companies.

The SEC plays a big role in protecting investors. A ban on class-action lawsuits would be bad for consumers who need protections against investment fraud schemes. Private enforcement of the laws against investment and securities fraud is crucial to the safety of investors in American markets. Foreign investors who hold over $6.2 trillion in stocks of U.S. corporations rely heavily on SEC regulations and enforcement policies. If the SEC allows corporations to ban class-action lawsuits, fraud protection that so many investors rely on will be seriously compromised. Many Americans and foreign investors may reconsider future investments that involve large amounts of money, and this could lead to a downturn in the U.S. economy.

If you need help with investment fraud and claims, contact the attorneys at Meyer Wilson at 888-390-6491 for a free consultation today.

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