UK pension funds are among those warning the Securities and Exchange Commission (SEC) this week that its recent U-turn on shareholder arbitration “will destabilise confidence in the US markets”.
Back in September, the US regulator pushed forward the adoption of a new Policy Statement, which its chair, Paul Atkins said would help “make IPOs great again”.
The statement welcomed for the first time the use of mandatory arbitration provisions.
Such provisions stop shareholders from pursuing class action lawsuits in instances in which securities law is broken, instead requiring them to arbitrate individual claims.
Under previous leaderships, the SEC has effectively banned the use of such clauses by making life harder for companies that include them in their registration documents for Initial Public Offerings (IPOs).
NEST, Pensions UK, Universities Superannuation Scheme (USS) and Brunel Pension Partnership are among more than 60 investors to sign an open letter to Atkins this week opposing the regulator’s new position.
“It is our strongly-held view as long-term investors that this radical departure from the Commission’s decades of precedent will destabilise confidence in the US markets,” the letter stated.
“Under the new policy, companies that violate federal securities laws will be shielded from public accountability, putting investments at risk and stripping investors of their well-established rights to recover losses on a class-wide basis and in a proceeding that provide them with full due process.”
Over the longer term, the policy is likely to lead to companies having to deal with “tens if not hundreds” of individual arbitrations over the same issue, the signatories warned, which could prove expensive and time consuming.
“By greenlighting this forced arbitration policy change, the SEC is countenancing companies’ efforts to cut off shareholder class action lawsuits, which are the key means by which both federal and state investor protection laws have been enforced and investor losses have been recouped when securities fraud has been committed,” the letter continued.
“By greenlighting this forced arbitration policy change, the SEC is countenancing companies’ efforts to cut off shareholder class action lawsuits”
It requested that Atkins “take prompt action to reverse the course, and ensure that the level of public accountability that is the hallmark of US capital markets is upheld”.
Beyond the UK signatories, the statement is signed by more than 50 US pension funds.
Republicans ask US companies to ignore EU law
In another letter that came to light this week, US lawmakers sought to undermine the European Union’s corporate sustainability rules.
A group of 16 State Attorneys General wrote to the heads of major companies, including Microsoft, Google and Meta, urging them not to comply with the Corporate Sustainability Due Diligence Directive (CS3D) and Corporate Sustainability Reporting Directive (CSRD).
Between them, the two laws require firms with large operations in Europe to disclose their exposure to sustainability-related risks and opportunities, and their impact on people and the planet, as well as taking responsibility for serious environmental and human rights breaches in their supply chains.
The attorneys general claim the rules “ask American companies like yours to follow European ESG and DEI mandates,” referring to actions relating to ESG and DEI.
Neither CS3D nor CSRD have any requirement for companies to pursue specific ESG or DEI objectives, apart from the inclusion of a climate transition plan, which is currently being renegotiated by European lawmakers.
Nonetheless, the letters warn that complying with the rules “is unlawful in the United States” and could expose firms to “lawsuits and government enforcement actions”.
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