Pomerantz Rallies Support Against Mandatory Arbitration

Pomerantz was deeply involved in drafting a November 3, 2025 letter to the SEC opposing the agency’s abrupt reversal of its longstanding mandatory arbitration policy.

The more than 60 signatories to the letter include many of the firm’s institutional investor clients as well as other public pension funds, Taft-Hartley funds, corporate governance organizations, and public servants such as Brad Lander, Comptroller of the City of New York and investment advisor to and custodian of the funds of the New York City Retirement Systems, James A. Diossa, General Treasurer, State of Rhode Island Office of the General Treasurer, Thomas P. DiNapoli, as Trustee of the New York State Common Retirement Fund, and Universities Superannuation Scheme Limited.

The letter, sent to SEC Chairman Paul Atkins, states in part:

The SEC made this drastic change without hearing from investors and corporations in any public comment process which would have revealed widespread opposition to this policy change.
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We encourage the Commission to consider returning to public consultation processes on matters that substantively alter policy. We feel that the absence of public consultations on important announcements which may negatively affect shareholder rights, risks lowering the quality of the highly regarded due process and governance standards in the United States, thereby presenting a risk to the attractiveness of U.S. capital markets. [T]his radical departure from the Commission’s decades of precedent will destabilize confidence in U.S. markets. Under the new policy, companies that violate federal securities laws will be shielded from public accountability, putting investments at risk and stripping investors of their well-established rights to recover losses on a class-wide basis and in a proceeding that provides them with full due process.
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By greenlighting this forced arbitration policy change, the SEC is countenancing companies’ efforts to cut off shareholder class action lawsuits—which are the key means by which both federal and state investor protection laws have been enforced and investor losses have been recouped when securities fraud has been committed—to be replaced by a costly, unproven, and unwieldy system of private arbitration. Class action lawsuits also provide the mechanism through which a corporation can efficiently resolve such litigation allowing all investors, institutional and retail, to participate in any recovery; no such mechanism exists under a private arbitration system. Importantly, history has shown that private shareholder legal actions have proved to be a far better mechanism than government enforcement to hold corporations accountable for wrongdoing and enable investors to recover funds.

The International Corporate Governance Network (ICGN), of which Pomerantz is a member, sent its own letter to the SEC in which it stated:

We feel that the absence of public consultations on important announcements which may negatively affect shareholder rights, risks lowering the quality of the highly regarded due process and governance standards in the United States, thereby presenting a risk to the attractiveness of U.S. capital markets.

The Council of Institutional Investors (CII) (of which Pomerantz is also a member), in response to the SEC’s policy statement states on its website:

For over a decade, the Council of Institutional Investors has stood firmly against the use of forced arbitration clauses in corporate charters and bylaws. These provisions undermine shareholder rights by restricting access to judicial forums.

On December 4, 2025, CII will host a webinar about the SEC’s policy statement on mandatory arbitration and its implications for institutional investors.