Investor Choice Act of 2019

II 116TH CONGRESS 1ST SESSION S. 2992 To amend the Securities Exchange Act of 1934 to prohibit mandatory pre- dispute arbitration agreements, and for other purposes. IN THE SENATE OF THE UNITED STATES DECEMBER 5, 2019 Mr. MERKLEY (for himself, Mr. DURBIN, Mr. BLUMENTHAL, Ms. WARREN, Mr. MENENDEZ, and Mr. WHITEHOUSE) introduced the following bill; which was read twice and referred to the Committee on Banking, Hous- ing, and Urban Affairs A BILL To amend the Securities Exchange Act of 1934 to prohibit mandatory pre-dispute arbitration agreements, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Investor Choice Act 4 of 2019’’. 5 SEC. 2. FINDINGS. 6 Congress finds the following: 7 (1) Investor confidence in fair and equitable re- 8 course is essential to the health and stability of the 9 VerDate Sep 11 2014 23:41 Dec 11, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2992.IS S2992 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 2992 IS securities markets and to the participation of retail 1 investors in those markets. 2 (2) Brokers, dealers, and investment advisers 3 hold powerful advantages over investors, and manda- 4 tory arbitration clauses, including contracts that 5 force investors to submit claims to arbitration or to 6 waive the right of investors to participate in a class 7 action lawsuit, leverage those advantages to severely 8 restrict the ability of defrauded investors to seek re- 9 dress. 10 (3) Investors should be free to— 11 (A) choose arbitration to resolve disputes if 12 they judge that arbitration truly offers them 13 the best opportunity to efficiently and fairly set- 14 tle disputes; and 15 (B) pursue remedies in court should they 16 view that option as superior to arbitration. 17 SEC. 3. ARBITRATION AGREEMENTS IN THE SECURITIES 18 EXCHANGE ACT OF 1934. 19 (a) IN GENERAL.—The Securities Exchange Act of 20 1934 (15 U.S.C. 78a et seq.) is amended— 21 (1) in section 6(b) (15 U.S.C. 78f(b)), by add- 22 ing at the end the following: 23 ‘‘(11) The rules of the exchange prohibit the 24 listing of any security if the issuer of the security, 25 VerDate Sep 11 2014 23:41 Dec 11, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2992.IS S2992 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 2992 IS in the bylaws of the issuer, other governing docu- 1 ments, or any contract with a shareholder relating to 2 the parties as issuer and shareholder, mandates ar- 3 bitration for any dispute between the issuer and the 4 shareholders of the issuer.’’; and 5 (2) in section 15 (15 U.S.C. 78o), by amending 6 subsection (o) to read as follows: 7 ‘‘(o) LIMITATIONS ON PRE-DISPUTE AGREE- 8 MENTS.—Notwithstanding any other provision of law, it 9 shall be unlawful for any broker, dealer, funding portal, 10 or municipal securities dealer to enter into, modify, or ex- 11 tend an agreement with customers or clients of that entity 12 with respect to a future dispute between the parties that— 13 ‘‘(1) mandates arbitration for that dispute; 14 ‘‘(2) restricts, limits, or conditions the ability of 15 a customer or client of that entity to select or des- 16 ignate a forum for resolution of that dispute; or 17 ‘‘(3) restricts, limits, or conditions the ability of 18 a customer or client of that entity to pursue a claim 19 relating to that dispute in an individual or rep- 20 resentative capacity or on a class action or consoli- 21 dated basis.’’. 22 (b) APPLICATION TO EXISTING AGREEMENTS.— 23 (1) IN GENERAL.—With respect to an agree- 24 ment described in section 15(o) of the Securities Ex- 25 VerDate Sep 11 2014 23:41 Dec 11, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2992.IS S2992 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 2992 IS change Act of 1934 (15 U.S.C. 78o(o)), as amended 1 by subsection (a) of this section, that was entered 2 into before the date of enactment of this Act, any 3 provision of that agreement that is prohibited by 4 such section 15(o), as amended by subsection (a) of 5 this section, is void. 6 (2) ONGOING ARBITRATION.—A provision of an 7 agreement prohibited by section 15(o) of the Securi- 8 ties Exchange Act of 1934 (15 U.S.C. 78o(o)), as 9 amended by subsection (a) of this section, shall not 10 be void under paragraph (1) if arbitration required 11 by that provision was initiated by any party on or 12 before the date of enactment of this Act. 13 SEC. 4. ARBITRATION AGREEMENTS IN THE SECURITIES 14 ACT OF 1933. 15 Section 6 of the Securities Act of 1933 (15 U.S.C. 16 77f) is amended by adding at the end the following: 17 ‘‘(f) LIMITATION ON ARBITRATION REQUIRE- 18 MENTS.—A security may not be registered with the Com- 19 mission if the issuer of the security, in the bylaws of the 20 issuer, other governing documents, or any contract with 21 a shareholder relating to the parties as issuer and share- 22 holder, mandates arbitration for any dispute between the 23 issuer and the shareholders of the issuer.’’. 24 VerDate Sep 11 2014 23:41 Dec 11, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2992.IS S2992 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 2992 IS SEC. 5. ARBITRATION AGREEMENTS IN THE INVESTMENT 1 ADVISERS ACT OF 1940. 2 (a) IN GENERAL.—Section 205(f) of the Investment 3 Advisers Act of 1940 (15 U.S.C. 80b–5(f)) is amended 4 to read as follows: 5 ‘‘(f) Notwithstanding any other provision of law, it 6 shall be unlawful for any investment adviser to enter into, 7 modify, or extend an agreement with customers or clients 8 of the investment adviser with respect to a future dispute 9 between the parties to that agreement that— 10 ‘‘(1) mandates arbitration for that dispute; 11 ‘‘(2) restricts, limits, or conditions the ability of 12 a customer or client of the investment adviser to se- 13 lect or designate a forum for resolution of that dis- 14 pute; or 15 ‘‘(3) restricts, limits, or conditions the ability of 16 a customer or client of the investment adviser to 17 pursue a claim relating to that dispute in an indi- 18 vidual or representative capacity or on a class action 19 or consolidated basis.’’. 20 (b) APPLICATION TO EXISTING AGREEMENTS.— 21 (1) IN GENERAL.—With respect to an agree- 22 ment described in section 205(f) of the Investment 23 Advisers Act of 1940 (15 U.S.C. 80b–5(f)), as 24 amended by subsection (a) of this section, that was 25 entered into before the date of enactment of this 26 VerDate Sep 11 2014 23:41 Dec 11, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2992.IS S2992 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 2992 IS Act, any provision prohibited by such section 205(f), 1 as amended by subsection (a) of this section, is void. 2 (2) ONGOING ARBITRATION.—A provision of an 3 agreement prohibited by section 205(f) of the Invest- 4 ment Advisers Act of 1940 (15 U.S.C. 80b–5(f)), as 5 amended by subsection (a) of this section, shall not 6 be void under paragraph (1) if arbitration required 7 by that provision was initiated by any party on or 8 before the date of enactment of this Act. 9 SEC. 6. APPLICATION. 10 Except as otherwise stated, the amendments made by 11 this Act shall apply with respect to any agreement entered 12 into, modified, or extended after the date of enactment 13 of this Act. 14 Æ VerDate Sep 11 2014 23:41 Dec 11, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6301 E:\BILLS\S2992.IS S2992 pamtmann on DSKBC07HB2PROD with BILLS