On April 15, 2021, the Public Investors Advocate Bar Association (“PIABA”) issued a statement supporting a bill called the Investor Choice Act of 2021. If enacted, this bill would amend the Securities Exchange Act of 1934, the Securities Act of 1933, and the Investment Advisors Act of 1940 to create three key changes. First, the bill would prohibit issuers of securities from mandating arbitration for a dispute between the issuer and its shareholders in any governing document or contract. Second, the bill would make it “unlawful” for any broker dealer or investment advisor to mandate arbitration with customers or to limit a customer’s ability to select or designate a forum. Third, the bill would allow for class action lawsuits in securities-related litigation. This bill would retroactively apply to agreements that mandate arbitration, include forum selection clauses, or limit class actions.
In response to this bill, the Securities Industry and Financial Markets Association (“SIFMA”) recently published a press release “strongly oppos[ing] any effort to ban” the enforceability of arbitration clauses in customer contracts and explaining that the “securities arbitration system has worked effectively for decades because it is subject to public oversight, regulatory oversight by multiple independent regulators, and rules of procedure that are designed to benefit investors.” SIFMA further stated that pre-dispute arbitration agreements support public policy in favor of arbitration and promote “fair, efficient, and economical dispute resolution for all parties.”
Prior similar legislation – most recently a comparable bill sponsored in 2019 – has not garnered enough support in Congress to become law. The 2021 bill has been introduced in both the House and Senate and is co-sponsored by multiple Democratic representatives and senators.