A New Expansion of Arbitration

This one escaped my notice until  Matt Levine’s Money Stuff column from April 22nd (subscription required) called it to my attention. Matt Levine frequently quips that “everything is securities fraud,” by which he means that almost any piece of bad news involving securities can be characterized by an aggrieved shareholder (or their attorney) as securities fraud. Back in October, 2025, Matt Levine amended that dictum to “Nothing Is Securities Fraud?” He did so in response to the SEC’s reversal in September 2025 of its longstanding opposition to allowing companies to require that shareholders submit claims to arbitration rather than initiating derivative litigation. The new rule would also allow the companies to require individual arbitration, blocking class or representative actions.

Matt Levine’s point in quipping that “everything is securities fraud” is, I take it, that too many claims chew up too many resources because they are ordinary, non-legal complaints by disgruntled shareholders dressed as securities fraud claims. But some things, he notes, really are securities fraud, and perhaps the SEC should not be throwing up barriers to those claims.

But now the SEC is allowing corporations to require that their shareholders bring their complaints in an arbitral forum and it appears that representative actions are also prohibited. So much for class actions. Goodwin Law reports on the SEC’s rule change here and also reports that Zion Oil & Gas is the first company to adopt a mandatory arbitration provision. SpaceX may follow suit, and if it does, that may become the new model until we have a federal government interested in policing (or allowing shareholders to police) corporate fraud again.

The consequences of this move are far from clear. There is a wealth of literature on both sides of the question of the efficacy of class action shareholder lawsuits as a measure to discipline corporations and their officers and directors. We may soon learn what happens if that tool is tossed aside. No doubt the SpaceXes of the world will devise new measures to respond to other alternatives to class actions, mass arbitration, and the partners in the improvisatory dance involving plaintiffs’ lawyers and corporate attorneys will bust out new moves.