April 30, 2013
In the wake of a FINRA disciplinary hearing panel decision not to enforce its own rules against broker-dealer Charles Schwab barring class action waivers in customer-broker account agreements because of the Federal Arbitration Act (see my previous blog posts about that decision here and here), investor rights advocates have stepped up their efforts to press the Securities and Exchange Commission to exercise its powers under Dodd-Frank to ban mandatory arbitration.
First, a few weeks ago, SEC Commissioner Luis Aguilar, in opening remarks to the North American Securities Administrators Association’s Annual NASAA/SEC 19(d) Conference, in the section entitled “Pre-Dispute Mandatory Arbitration Weakens Investor Protection,” reiterated his long-standing opposition to mandatory arbitration, but added a level of focus and detail to his arguments I had not seen previously.
Second, a group of 37 Senators led by Sen. Al Franken (D-Minn) today wrote a letter to SEC Chair Mary Jo White and issued a press release urging the SEC to eliminate mandatory securities arbitration. The Senators’ letter expressly referenced the FINRA hearing panel decision in the Schwab case.
Schwab’s controversial move to insert a class action waiver in its customer account agreement seems to have backfired – by generating political momentum opposing mandatory securities arbitration. One must question Schwab’s strategic decision-making.
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