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SEC reverses policy blocking IPOs for firms banning class-action suits

The Securities and Exchange Commission (SEC) has voted to reverse an unwritten policy whereby it blocked the IPOs of companies that want to ban investor class action lawsuits in their charters and bylaws. The agency said it would allow companies seeking to go public to require that shareholders resolve claims of fraud or other false statements through arbitration rather than court litigation. "The commission is not a merit regulator that decides whether a company's particular method of resolving disputes with its shareholders is good or bad," SEC Chair Paul Atkins said. CalPERS, the California public pension fund, said forced arbitration would "diminish the deterrent effect" of class actions. Ann Lipton, a former class action litigator, said the change would damage the public interest, observing that lawsuits can expose corporate misconduct among other matters.

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