U.S. Markets

U.S. SEC's Piwowar urges companies to pursue mandatory arbitration clauses

WASHINGTON (Reuters) - A key U.S. securities regulator on Monday voiced support for possibly allowing companies to tuck language into their initial public offering paperwork that would force shareholders to resolve claims through arbitration rather than in court.

Michael Piwowar, Commissioner of the U.S. Secuirites and Exchange Commission, speaks at the Milken Institute Global Conference in Beverly Hills, California, U.S., May 2, 2016. REUTERS/Lucy Nicholson

“For shareholder lawsuits, companies can come to us to ask for relief to put in mandatory arbitration into their charters,” said Michael Piwowar, a Republican member of the U.S. Securities and Exchange Commission. “I would encourage companies to come and talk to us about that.”

Piwowar’s comments, which he made during an appearance at the conservative-leaning Heritage Foundation, come just a few days after the SEC’s new Chairman Jay Clayton signaled plans to scale back regulatory burdens that may be discouraging or delaying companies from going public.

As part of that plan, Clayton invited companies to petition the SEC for exemptions from certain disclosure requirements.

Clayton did not specifically mention requests to include mandatory arbitration provisions in public offering documents, but Piwowar said he thinks the issue falls more broadly into efforts by the SEC and its new Corporation Finance Division Director to be more collaborate in how it works with companies during the IPO review process.

Corporate interest groups and Republicans have long complained about what they see as the frivolous filing of shareholder class action suits, and often advocate for the use of mandatory arbitration to reduce the amount of litigation.

Stock brokers routinely include such provisions in their account agreements with customers, but companies selling their shares to the public do not.

The issue garnered attention in 2012, when the SEC pressured private equity firm Carlyle Group L.P. CG.O to drop a mandatory arbitration requirement before the regulator would sign off on its IPO plans.

Most recently, the fight over mandatory arbitration erupted between Republicans and the Consumer Financial Protection Bureau, which under the direction of Obama appointee Richard Cordray adopted rules banning banks and credit card companies from blocking customers from participating in class actions.

Piwowar on Monday declined to elaborate on some of the plans in the works at the SEC to relax regulations for companies, saying he would defer to Clayton.

However, he said he would support exploring whether to eliminate rules which permit only “accredited investors,” or those with a net worth of a $1 million plus, to invest in higher risk private stock deals.

“I’d like to ... question the premise of even having these artificial distinctions,” he said.

Reporting by Sarah N. Lynch; Editing by Chizu Nomiyama