This Annual Conference is an important opportunity for representatives of NASAA and the SEC to come together to discuss how best to accomplish our common goal of protecting investors. These annual conferences provide an opportunity to increase collaboration, communication, and cooperation for the benefit of investors, and to promote fair and orderly markets. I have been honored to have served as the SEC’s liaison to NASAA for the past four years. I know and appreciate NASAA’s mission of protecting main street investors and the critical role that state securities regulators play in the enforcement of the securities laws. You are often the first to receive complaints from investors and identify the latest scams devised to steal from investors.

I want to take this opportunity to highlight some of the recent achievements of NASAA’s members. According to the latest statistics, as of October 2012:

…continue reading: Fighting on Behalf of Investors Despite Efforts to Weaken Protections

As private equity giant Carlyle Group LP prepared to join rivals Blackstone Group LP and KKR & Co. as a publicly traded company this year, it made headlines with a stunningly “shareholder-unfriendly” proposal to eliminate the litigation rights of its future public owners.

On January 10, Carlyle amended its registration statement in advance of its forthcoming initial public offering (“IPO”) to include a provision declaring that any and all investor disputes would be decided in private arbitration proceedings rather than in a court of law.

Although Carlyle ultimately removed the provision after widespread publicity and SEC objections, it is likely only a matter of time before more companies attempt to insert similar provisions in their registration statements and corporate charters. Because class action claims are usually unavailable in arbitrations — Carlyle’s clause explicitly prohibited them — and because arbitration proceedings generally disadvantage individual plaintiffs to the benefit of corporate defendants, if such clauses become widespread, it will take away an important check on corporate conduct and deal a tremendous blow to investor rights.

…continue reading: The Carlyle Group Tries to Bar Investors From Court

The financial press and blogs were abuzz in late January 2012 about the Securities Act of 1933 (Securities Act) registration statement filed by The Carlyle Group L.P. for its initial public offering. Its limited partnership agreement required all shareholder disputes with the partnership to be resolved by mandatory, binding and confidential arbitration. The provision included a prohibition against shareholders bringing class actions. Much of the discussion that was critical of the provision focused on the elimination of class actions and not on the pros and cons of arbitration as such.

According to published reports, the SEC advised Carlyle that it would not grant an acceleration order permitting the registration statement to become effective unless the arbitration provision was withdrawn. As a practical matter, Carlyle had no means to challenge the Commission and no practical alternative other than to withdraw its arbitration provision, which it did.

I object to the process by which the SEC killed Carlyle’s arbitration provision.

…continue reading: Arbitration Provisions in Corporate Governance Documents

The U.S. Supreme Court recently granted certiorari in a case that is likely to resolve important outstanding questions regarding attempts to limit arbitration clauses so that they do not permit class action arbitrations. The case, AT&T Mobility LLC v. Concepcion, No. 09-893, presents the question whether the Federal Arbitration Act preempts state laws holding such class action waivers unconscionable if they are contained in consumer contracts. This case follows closely on the Court’s holding last month in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., No. 08-1198 (Apr. 27, 2010), that contracts that are silent on class arbitration must be read to bar that procedure.

Class Arbitration Waivers and Unconscionability Law

The case on appeal is Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009), which struck down a class waiver in an arbitration clause as unconscionable under California law. The Ninth Circuit held that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), does not preempt California law in this respect. 584 F.3d at 852.

…continue reading: Supreme Court to Decide Rule on Class Waivers in Arbitration Clauses

New rules took effect February in Delaware governing the arbitration of business disputes in the Delaware Court of Chancery. The rules implement amendments to Delaware law, adopted last year, granting the Chancery Court jurisdiction to arbitrate certain business disputes, and compliment rules already in place governing the Court’s mediation of business and technology disputes.

Under the new law, the Court of Chancery has jurisdiction to arbitrate “business disputes,” which would include most complex corporate and commercial disputes. At least one of the parties must be a business entity, and at least one must be organized under Delaware law or have its principal place of business in Delaware. No party can be a consumer. In a claim exclusively for monetary damages, the amount in controversy must be at least $1 million. All parties must consent to the arbitration.

…continue reading: Alternative Dispute Resolution in the Delaware Court of Chancery