Natalia Renta
Paul Atkins, chair of the Securities and Exchange Commission, has repeatedly said he wants to “make IPOs great again.” Unfortunately, this has resulted in nothing short of an assault on everyday investors—including teachers, nurses, firefighters and other workers with 401(k)s and other retirement accounts, eroding their tools to hold corporate insiders accountable for wrongdoing.
The SEC’s decision to reverse its longstanding policy that prevented companies from forcing investors into arbitration is an alarming example of this troubling trend.
Investors who have suffered losses due to corporate misconduct already face excessive obstacles getting their day in court; they do not need the SEC—an agency tasked with protecting them—to tilt the playing field further against their interests. A recent report from National Economic Research Associates found that only 207 new federal securities class action lawsuits were filed in 2025, down from 232 the previous year. Dismissals increased by 34% from 2024.
Historically, these types of legal actions have been critical for investors’ ability to recoup losses from fraud. Since 1995, investors have recovered approximately $100 billion through securities class action claims, including more than $19.4 billion after major corporate frauds like the 2001 and 2002 collapses of WorldCom, Enron Corp. and Tyco International. Now the SEC is going to allow corporations to prevent investors from bringing those types of cases to court and instead force investors into arbitration, a confidential, one-off proceeding that can be expensive, opaque and tilted in favor of repeat corporate players, possibly incentivizing many smaller investors to give up, rather than pursue a claim.
Besides being harmful to individual investors, who would be far less likely to recoup losses, wider adoption of forced arbitration would more broadly erode trust in capital markets. Public securities litigation generates disclosures and legal precedents that deter future misconduct and signal to other companies and investors what behavior crosses the line.
By contrast, claims resolved behind closed doors in arbitration create fewer public records, making it more likely that fraud or governance failures will go undetected or unremedied. Our capital markets’ reputation for stable and predictable rules accompanied by robust accountability would suffer, making U.S. markets less attractive.
This is probably why mainstream companies, institutional investors and proxy advisers have spoken out against forced arbitration. For example, Johnson & Johnson recommended in 2023 that shareholders vote against a proposal to adopt a forced arbitration bylaw, and the proposal was withdrawn. The board of Intuit Inc. urged investors in 2020 to oppose a similar measure, warning it was not in the best interests of the company or its shareholders, and investors overwhelmingly agreed. Institutional investors have cautioned that shutting off shareholder class actions “will destabilize confidence in U.S. markets.” Proxy advisory firms tasked with providing research and analysis to investors have been critical of attempts to subject shareholders to forced arbitration.
It is not surprising, therefore, that the only company that has taken advantage of the SEC’s recent policy shift so far is one shareholders accused of securities fraud and fiduciary duty breaches, one whose shares were delisted from the NASDAQ and are trading at less than a dollar. The company, Dallas-based Zion Oil & Gas Inc., describes its strategy as a biblical treasure hunt, and it continues to raise capital from small investors, rather than deep‑pocketed institutions, leaving those households uniquely exposed if things go wrong. In December 2025, it became the first company to adopt a bylaw amendment mandating arbitration for shareholder disputes.
Forced arbitration is about two things. First, it shifts power away from investors and toward corporate insiders. Second, it makes it easier for companies to get away with fraud and abusive practices.
If the SEC continues down this path, more high‑risk companies could follow Zion’s lead, eroding the integrity of the U.S. capital markets that working people rely on to save and retire with dignity.
Natalia Renta is the associate director of corporate governance and power at the Americans for Financial Reform Education Fund.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.
Tags: arbitration, Capital Markets, corporate governance, Retirement Plan, securities regulation