Pre-Dispute Mandatory Arbitration Challenged

While the Dodd-Frank financial reform law signed into federal law by President Barack Obama in July 2010 makes provision for the Securities and Exchange Commission (SEC) to either curtail or prohibit compulsory arbitration being written into investor agreements with brokers, it has not yet used this provision. NASAA spokesman Bob Webster was reported as saying that the time is ripe for the SEC to use this Dodd-Frank provision to protect the investing public, and that this issue is top of the organization’s agenda. At a NASAA conference, Arkansas securities commissioner and president of NASAA, A. Heath Abshure, pointed out that arbitration is becoming the only forum investors have to redress injustices. State regulators have noted that pre-dispute mandatory arbitration clauses are even being incorporated into some agreements between clients and investment advisers.

In a comment to reporters regarding arbitration, SEC commissioner Elisse Walter was reported as saying that “arbitration presents a number of very significant advantages over court litigation for investors.” SEC commission Luis Aguilar noted that a “client’s right to go to court to recover monetary damages is an important right that should be preserved and kept in the client’s toolkit.”

Founded in 1919, NASAA‘s primary goal is to protect investors from fraud through a network of state, federal and industry regulators.