Recent Wall Street notoriety has left many wondering if small investors can regain their confidence in the market and feel comfortable investing again. Heath Abshure, the current president of the North American Securities Administrators Association (NASAA) believes that the secret lies in small investor’s access (or lack thereof) to the courts. Under the current rules, enforced by a self-regulating industry, small investors can’t even get their foot in the door of a courtroom, with agreements limiting their actions to binding arbitration which the industry conveniently controls. Asbhure argues that the only way this can be remedied is a complete removal of the mandatory arbitration clauses, freeing investors and allowing them to sue their brokers.
Abshure contends that “The virtual elimination of litigation as a dispute resolution option through mandatory arbitration clauses, coupled with increasing procedural and evidentiary burdens, will have profound effects on investors and their confidence in investment products and markets. Most troubling is that these remedies are decreasing just as the era of crowdfunding and general solicitation in Regulation D, Rule 506 offerings is about to launch. This presents particular risks to small investors,”
Of course, individuals on Wall Street are not the only ones who wrestle with this abritration issue. In many of the contracts we sign in our day to day lives, arbitration clauses exist and seek to impede our right to trial. For example, as parents, we see arbitration clauses – even waiver of rights – in bounce houses, non-competitive sports, water parks, etc. It is important that when you review contract documentation you take special care to review any arbitration or other clause which discusses dispute settlement. If you are at all concerned, you should seek legal representation prior to signing any agreement.