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May 3, 2018 by |

San Francisco and California Securities Fraud Attorney: Securities Fraud and the Dangers of Forced Arbitration

ATTORNEY NEWSLETTER

SEC Considers Allowing Arbitration Clauses in IPOs

Investors Could Lose an Important Tool for Fighting Fraud

The Securities and Exchange Commission (SEC) is considering a new regulation that would rob investors of an important tool for fighting against securities fraud. The regulation would allow corporations to include a mandatory arbitration clause in their initial public offerings (IPOs).  Such a move by the SEC would effectively ban investors from joining together in class actions to recover for corporate fraud or scams built into the corporations’ securities offerings.

Over the years, class actions have recovered billions of dollars for investors cheated by just such fraud. Victims range from large pension funds for policemen and firefighters to average American citizens who have their retirement savings tied up in IRAs and 401(k)s that may have invested funds in fraudulent IPOs and other offerings. Private enforcement of securities laws through class actions have been a key way to hold corporations accountable for their behavior. 

The San Francisco and California securities fraud attorneys at Evans Law Firm, Inc. represent consumers in securities fraud class actions and individual customers, especially seniors, who have lost money as the result of securities fraud. Our attorneys know how important private enforcement of securities law is.  If you or a loved one lives in California and has suffered a loss as a result of securities fraud, call us today at (415)441-8669. 

Lessons From the 2008 Financial Crisis

Class actions were particularly effective in getting recovery for victims of the country’s 2008 financial crisis. Take, for example, the case of American International Group (AIG), one of the country’s largest insurance and financial conglomerates. After years of selling hundreds of billions of dollars of derivatives in the years before the 2008 crisis, AIG was in a financial tailspin. Deemed “too big to fail” by the government, a series of bailouts totaling over $180 billion rescued AIG from the brink.  After being rescued, AIG turned around and paid its executives enormous bonuses.  The government did nothing to prohibit the irresponsible behavior.

Finally, a class action headed by a large pension fund sued AIG for securities law violations alleging that the company misrepresented and concealed its exposure to the subprime real estate market, leading investors to purchase its stock and debt which those investors would not have done had they known the truth.[1]  After years of litigation, AIG agreed to a 2015 settlement of $970.5 million paid out to investors who bought AIG securities during the time of its misrepresentations.  No criminal or regulatory enforcement actions were ever pursued against AIG.  Investor recovery came only through private enforcement.  Other class actions were similarly effective in obtaining recovery for defrauded investors.  Private securities actions against companies such as Enron, WorldCom, Tyco, Bank of America, and Global Crossing[2] returned $19.4 billion to defrauded investors, over ten times what the SEC’s own enforcement recoveries and penalties netted.

Forced arbitration clauses in securities offerings would essentially eliminate that kind of collective enforcement action. The securities fraud attorneys at Evans Law Firm deplore such a move by the Trump Administration’s SEC.  Armed with a mandatory arbitration clause in every IPO, issuers would be able to defend against claims of fraud simply by requiring each purchaser to arbitrate any dispute individually.  That is a major hurdle to any private enforcement action as arbitration is costly and time-consuming and precludes collective action. This seems to be just the kind of world the Trump Administration wants.  But make no mistake, without class actions, lawbreaking companies may face little consequences for widespread fraud that could again plunge the nation into a financial crisis.

Contact Us

If you or someone you love is the victim of any type of securities or other financial fraud or financial elder abuse, call the San Francisco and California securities fraud attorneys at Evans Law Firm, Inc. at (415) 441-8669, or by email at <a href=”mailto:info@evanslaw.com”>info@evanslaw.com</a>. Our attorneys have experience with fraud and financial elder abuse cases and complex qui tam or whistleblower cases, complex financial contract cases and cases against large insurance companies. We can help guide your case through a jury trial or toward an equitable settlement.  We also handle cases involving physical elder abuse, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.

 

[1] Evans Law Firm, Inc. was not involved in the securities class action against AIG.

[2] Our attorneys were not involved in any of these actions.

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