SEC Allows Public Companies to Block Investors from Class-Action Lawsuits

New rule lets companies force arbitration instead of court for shareholder disputes, reversing long-standing SEC policy

On September 17, 2025, the U.S. Securities and Exchange Commission voted along party lines to reverse a long-standing policy that prevented companies going public from including mandatory arbitration clauses in their charters or bylaws.

Under the new rule a public company may require that shareholder claims — such as fraud or false statements — be resolved through arbitration rather than through class-action lawsuits in court.

Chair Paul Atkins defended the change as part of a drive to reduce legal and regulatory burdens and make initial public offerings more attractive.

Commissioner Hester Peirce supported the rule, saying the market can better judge whether arbitration is appropriate.

Critics, including investor advocates and Democratic officials, argued that class-action lawsuits returned billions to investors — for example, three point seven billion dollars in two thousand twenty-four alone — while arbitration recoveries have been far lower.

Some also warned that the change could reduce transparency and weaken investor protections.

The decision may have limited immediate effect in jurisdictions like Delaware, which bans arbitration for many federal securities claims, but it signals a broad shift toward limiting class-action litigation for public companies.