The Chairman of the House Financial Services Committee, Congressman Barney Frank has given his support in opposing any move by the Securities and Exchange Commission that would take aware shareholders’ rights to sue companies. Recently, the SEC has announced that it is considering rules to permit public companies to resolve disputes with their shareholders through mandatory arbitration. This essentially would eliminate a shareholder’s right to bring his grievances to the courts.
In a letter to SEC Chairman Cox, Congressman Frank stated that such a move would “represent a drastic change in shareholder rights and is not one a public company should be permitted to impose unilaterally.” Congressman Frank wants a “vigorous open consideration and debate” on any proposed rules that would limit shareholders’ rights. Furthermore, Congressman Frank criticized any elimination of shareholder rights in favor of arbitration that “would allow a company to insulate itself from litigation from its shareholders, even where it engaged in fraud, by making it uneconomic for most individual shareholders to bring suit.” Congressman Frank also notes that shareholders would be extremely limited in their options to appeal decisions made be arbitration panels and thus, investors would be “losing their rights under federal securities laws in order to invest in our public markets.”
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