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12.01.15

Investor Choice Act of 2013: A Radical Transformation for Investor Litigation

On August 2, 2013, Rep. Keith Ellison (D-MN) introduced into Congress the Investor Choice Act of 2013 (H.R. 2998). The provision would amend the Securities Exchange Act of 1934 to prohibit mandatory pre-dispute arbitration agreements by brokers and dealers. These firms now utilize a provision in their new account documents that requires that any customer dispute an investor may have to be resolved through binding arbitration under the auspices of the Financial Industry Regulatory Authority (FINRA). In addition, the proposed provision would also modify the Investment Advisers Act of 1940 to make it unlawful for any investment adviser to enter into an agreement with a customer that includes a pre-dispute arbitration agreement.

The North American Securities Administrators Association (NASAA) has announced its strong support of the measure observing that “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.” (NASAA’s Press Release can be viewed here: http://www.nasaa.org/25252/nasaa-strongly-supports-the-investor-choice-act-of-2013/)

Although it is uncertain whether this measure will be enacted, one thing is clear: If the Investor Choice Act of 2013 becomes law, plaintiff’s securities lawyers across the country will begin bringing their cases in state courts everywhere rather than in FINRA arbitration where at least some of the arbitrators have securities industry backgrounds.

                                                                                                                                             

This communication is provided for your information only and is not intended to constitute legal advice or legal opinion as to any particular situation.  You should not take, or refrain from taking, any action based on information in this article, without seeking legal counsel from an attorney on your particular facts and circumstances. Jones & Keller would be happy to provide you with specific advice about particular situations, if desired.  Do not hesitate to contact us.