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SEC had blocked IPOs for firms banning class-action suits

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Three Republicans on SEC voted to change rule; Democrat

voted no

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Corporations back rule change, shareholder advocates

oppose it

By Douglas Gillison

WASHINGTON, Sept 17 (Reuters) - A divided Securities and

Exchange Commission on Wednesday handed a victory to companies

that want to shield themselves from investor class action

lawsuits, making it easier for firms seeking to go public to

require that investors resolve claims of fraud or other false

statements through arbitration rather than in court.

The commission voted 3-1 along party lines to reverse a

long-standing but unwritten SEC policy in which the agency

blocked the Wall Street debuts of companies that want to ban

shareholder class action lawsuits in their charters and bylaws.

During President Donald Trump's previous administration,

the agency

considered such a change

but

ultimately took no action

.

"The commission is not a merit regulator that decides

whether a company's particular method of resolving disputes with

its shareholders is good or bad," SEC Chair Paul Atkins said at

a public meeting.

Caroline Crenshaw, the commission's lone remaining

Democrat, lambasted the new policy, saying it would effectively

deny many shareholders their rights while allowing companies to

keep their alleged misdeeds in the shadows.

Corporate interest groups and Republicans have long

complained about what they see as the frivolous filing of

shareholder class action suits, and often advocate for the use

of mandatory arbitration to reduce the amount of litigation.

Consumer advocates and plaintiffs lawyers say court action

helps hold companies to account, gives small investors the

chance to recover damages they otherwise couldn't, and gives the

public access to evidence and legal reasoning that helps build

case law.

Ann Lipton, a former class action litigator now at the

University of Colorado law school, said the change would be

damaging to the public interest, noting law suits can expose

corporate misconduct among other things.

"From a public policy perspective, this is horrific," said

Ann Lipton, a former class action litigator now at the

University of Colorado law school, adding that law suits can

expose corporate misconduct among other things. "It halts all

development of the law and it halts all insight into what

companies are really doing."

The issue first gained prominence in 2012 when the SEC

signaled it would

oppose an IPO

planned by the private equity fund Carlyle Group ( CG ), which

sought to require future shareholders to resolve disputes in

arbitration.

Senator Elizabeth Warren, the top Democrat on the Senate

Banking Committee, on Wednesday released a letter she wrote to

the SEC expressing "deep concern" that the SEC was poised to

undermine shareholder rights and the public interest.

In a separate matter on Wednesday, the SEC is also due to

consider whether to extend for a second time the deadline for

private investment funds to comply with Biden-era regulations

requiring enhanced disclosures.