In late 2025, the U.S. Securities and Exchange Commission reversed its decades-old policy that protected investors’ well-established rights to hold corporations publicly accountable for securities fraud. Specifically, under the new policy, companies seeking to issue shares of stock in Initial Public Offerings, through which companies “go public,” are now allowed to force shareholders into private, individual, and mandatory arbitrations, stripping investors of their rights to bring individual and class action lawsuits in the event that the companies, their executives, their board members, or their outside auditors and underwriters provide false and misleading information about the company to the market in connection with the sale of the company’s stock.
While the overwhelming majority of companies that have issued IPOs of stock since the SEC’s radical policy change have chosen not to include forced arbitration provisions in their corporate governing documents, there has been one very notable exception – Elon Musk’s SpaceX. In its registration statement for its massive June 12, 2026 IPO, among other highly restrictive corporate governance and forum selection provisions, SpaceX included (1) a very strict forced arbitration provision that would not have been allowed absent the SEC’s radical policy change, and (2) a prohibition on SpaceX shareholders bringing investor class actions.
These actions of the SEC and SpaceX brought to mind the remarkable case stemming from the collapse of WorldCom that our firm, Barrack, Rodos & Bacine – as a co-lead counsel for the lead plaintiff New York State Common Retirement Fund, through its sole trustee, the New York State Comptroller – pursued as a securities class action. We realized that without having access to a federal district court, and the extensive work and efforts put into that case by the lead plaintiff, by co-lead counsel and by the court itself, we never could have achieved either the extraordinary recovery obtained for the investor class in that case ($6.19 billion) or the landmark judicial decisions that have been cited approvingly by other courts for the past twenty years.
BR&B partners Jeff Golan and Chad Carder were extensively involved in the WorldCom case and have also been following and working on responses to the SEC’s radical forced arbitration policy change. The pair wrote an article reviewing the WorldCom recovery and the case law that was developed through the litigation in light of the SEC’s recent policy change to permit forced arbitration, which has just been published on the website of the Alliance to Protect Shareholder Value, a coalition that has been fighting and trying to limit the impact of the SEC’s forced arbitration policy change. The four primary members of the Alliance are: Americans for Financial Reform; the Consumer Federation of America; Healthy Markets; and the American Association for Justice. The article, entitled “The WorldCom Scandal’s Lessons for the Current SEC,” is available through the Alliance’s website here (The WorldCom Scandal’s Lessons for the Current SEC — Alliance to Protect Shareholder Value) or via PDF here.