Ellison Bill Would Greatly Benefit Capital Formation and Job Creation by Fostering Investor Trust, Ensures that Investors Have Access to Judicial System by Prohibiting Use of Mandatory Pre-dispute Securities Arbitration Agreements

WASHINGTON (August 2, 2013) – The North American Securities Administrators Association (NASAA) announced its strong support today for The Investor Choice Act of 2013 (H.R. 2998), which would prohibit the use of mandatory pre-dispute agreements by broker-dealers and investment advisers that force investors to arbitrate disputes or otherwise surrender their right to pursue recourse in a forum of their choosing. NASAA praised the leadership of the bill’s author and member of the House Financial Services Committee Rep. Keith Ellison (D-MN) for introducing the legislation.

The Investor Choice Act of 2013 will level the playing-field for retail investors by amending Section 921 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to statutorily prohibit the use of mandatory pre-dispute agreements in broker-dealer and investment adviser customer contracts that restrict investors’ ability to pursue claims in the lawful forum of their choosing. The Investor Choice Act of 2013 would not in any way prevent investors from voluntarily electing to resolve a dispute through arbitration or mediation after the facts and circumstances of the dispute have been discovered.

“NASAA is proud to support The Investor Choice Act of 2013 and applauds Rep. Ellison for recognizing that that the inclusion of mandatory arbitration provisions in broker-dealer and investment adviser customer contracts denies many investors the ability to pursue legitimate claims against fraudsters. Investors deserve better than the current ‘take-it-or-leave-it’ approach to securities dispute resolution. Rep. Ellison’s legislation will ensure that investors have the unencumbered right to seek redress in the appropriate and desired forum,” said Heath Abshure, NASAA President and Arkansas Securities Commissioner.

“This legislation is all about preserving investor choice and ending an investor protection gap,” Abshure said, noting that a recent decision by Charles Schwab & Co. to expand its mandatory pre-dispute arbitration contracts to require that customers waive their right to participate in class actions heightens the urgency of passing the Ellison bill to uphold and restore the rights of investors. “Mandatory pre-dispute arbitration clauses, especially when coupled with class action waiver provisions, effectively eliminate any reasonable chance for a small to medium size investor to have her claim heard in an unbiased and fair forum.”

“Investors want to get back in the market, but they’re rightly wary that the game is rigged against them,” Rep. Ellison said, “The Investor Choice Act helps level the playing field. Investors shouldn’t have to sign away their rights in order to work with a financial advisor or broker dealer to build a secure retirement. By removing some of the unfair advantages, consumers will be more eager to invest, which will create jobs and strengthen our economy.”

NASAA has long been concerned with the widespread use of mandatory pre-dispute arbitration clauses in customer contracts used by broker-dealers and, more recently, investment advisers. To ensure that victims of securities fraud will have recourse, NASAA has urged Congress to explore amending federal law to ensure that all investors, especially those investing small amounts, have a reasonable avenue to seek recovery.

Section 921 of Dodd-Frank gave the Securities and Exchange Commission explicit rulemaking authority to prohibit, condition or limit the use of mandatory pre-dispute arbitration agreements if it finds that doing so is in the public interest and for the protection of investors.

“Although Congress gave the SEC an important tool to act in this area, in the three years since the Dodd-Frank Act was passed, the SEC has not exercised its authority to conduct rulemaking or, at a minimum, undertake a finding to determine the impact of mandatory arbitration on investors and the public,” Abshure said. “The need to address this area is especially pressing given the actions by Schwab. We appreciate the leadership of Rep. Ellison in taking this significant step toward advancing the underlying intent and spirit of Section 921 of the Dodd-Frank Act. We look forward to working with Rep. Ellison to ensure the timely enactment of this important investor protection legislation.”

— NASAA —

For more information or to arrange an interview with Commissioner Abshure, contact:

Bob Webster | Director of Communications
202-737-0900