Commissioner Aguilar Speech: Fighting against Efforts to Weaken Investor Protections; E.g., the JOBS Act (with Lofchie Comment)

SEC Commissioner Luis A. Aguilar delivered a speech at the North American Securities Administrators Association, Annual NASAA/SEC Conference criticizing what he said were "efforts to weaken investor protections". In addition to praising the efforts of the states in the securities enforcement area and echoing the concerns of NASAA that the JOBS Act may materially increase fraud against investors, Commissioner Aguilar argued for (i) disqualifying felons and other bad actors from Rule 506 offerings; (ii) strengthening private remedies for victims of fraud by allowing private lawsuits against persons who aid or abet fraud; and (iii) doing away with pre-dispute mandatory arbitration for investor claims.

Lofchie Comment: Commissioner Aguilar states: "Arbitration may be a viable option after a dispute arises and both parties knowingly agree to go into arbitration." However, the FINRA Rules, approved by the SEC, give investors a right to force arbitration that they cannot waive. That is, under FINRA Rule 12200, arbitration is mandatory "if requested by the customer." Accordingly, I generally advise broker-dealers that they are foolish not to include mandatory arbitration clauses in their agreements because, if they do not do so, they will have lost any say as to whether a dispute should be arbitrated or litigated. By including a mandatory arbitration clause, the playing field is leveled; the dispute will be arbitrated unless both parties agree to go to court. If the SEC is opposed to arbitration unless both parties agree, then the SEC just has to require FINRA to amend its mandatory arbitration rule - which rule was adopted for the purpose of giving an advantage to investors, not for the purpose of favoring broker-dealers.

View speech in full here (links externally to SEC website).For related recent news on the JOBS Act, including criticisms of the JOBS Act by state regulators who want the SEC to limit its scope, and criticisms of the SEC by Congress who want the SEC to implement it faster, link to Current Topics - JOBS Act.