With military retirement increasingly invested in securities markets, veterans and service members could lose their savings if this crucial right is taken away.


The Securities and Exchange Commission (SEC) is threatening to change long-standing policies that protect the retirement savings of service members and veterans. For decades, if a big corporation misled or deceived investors, those harmed by this fraud could band together to hold them accountable in public court. With military retirement increasingly invested in securities markets, veterans and service members could lose their savings if this crucial right is taken away.

Class actions have recovered billions of dollars for cheated investors, ranging from large pension funds for retired or disabled veterans to active service members holding IRAs and 401(k)s. These actions have also been central to holding corporations accountable for scams and fraud. Now, however, there are serious indications that SEC leadership is considering letting corporations include forced arbitration “rip-off” clauses in their bylaws or offering documents, forcing investors to give up their right to participate in class actions as the price of owning the company’s stock.

This policy reversal would allow companies to block hardworking Americans, including active duty service members and veterans, from banding together as a group to recover the losses they suffer as a result of widespread violations of securities laws. It would also remove an important deterrent to fraud that harms, not just individual investors, but the basic integrity of our nation’s capital markets on which the health of our economy depends.


Due to recent changes to the military retirement system, everyone who enlists after January 2018 receives some retirement benefits, whether they serve the 20 years required for full benefits or not. New service members are automatically enrolled in the Thrift Savings Plan, a federal 401(k) that allows members to grow their savings in the stock market. The TSP is an excellent retirement plan that offers high quality investment options, but even the best plan cannot protect its members from the harmful effects of financial fraud.

If the SEC allows corporations to ban class action lawsuits in their IPOs, we will lose our most effective tool to fight back against securities fraud that could decimate the savings of hardworking Americans, including those that bravely serve our country. Instead, the retirement savings of every new service member – as well as the many veterans and retirees with an IRA or 401(k) – will be at the mercy of major corporations willing to cook the books to attract needed capital or hide their deteriorating financial condition. As the Department of Defense concluded regarding financial scams, veterans need and deserve full legal recourse against “unscrupulous” actors – including the right to hold them accountable in class actions.


Class actions provide a practical way for groups of investors who have suffered similar harm to join together in court and hold the corporation accountable. Forced arbitration clauses that ban class actions often block harmed investors from recovering any of their stolen money – because the issues in a financial fraud case are often too complex, and the costs of building a case are too high, for these claims to be dealt with effectively through individual arbitration.

Recent high-profile cases of securities fraud make clear that private enforcement is central to ensuring accountability and protecting Americans’ investments. Even when the federal government steps in, defrauded investors typically get more money back in private class actions. For instance, while the SEC recovered penalties and fees totaling $1.8 billion against Enron, WorldCom, Tyco, Bank of America and Global Crossing, private securities class actions returned $19.4 billion to defrauded investors – more than ten times as much.

A more recent case demonstrates the harm a reversal of SEC policy could inflict. Petrobras, a Brazilian oil company, is charged with misleading investors about their financial statements and business operations. When claims were filed, the court found there were two different sets of investors: those who purchased securities on the U.S. market and those who purchased securities on the Brazilian stock exchange. Thanks to the U.S. securities law, the first group of investors was able to bring class actions despite a forced arbitration clause banning class actions in Petrobras’ bylaws. These investors are set to recover more than 90 percent of the $3 billion fraud settlement. The second group of investors, at the mercy of Brazilian law, were forced into individual arbitration and barred from joining a class action. They are not expected to recover a dime.



When Bernie Madoff’s $20 billion Ponzi scheme made national headlines in 2008, Navy veteran Michael De Vita quickly became the public face of thousands of investors who lost everything. He worked as a naval electrician, fixing planes at his local base. After losing decades of savings and the high returns he was told he had earned, Michael had to scrap his plan to retire at 60. His 80-year-old mother Emma had also invested in Madoff’s fund, losing her late husband’s $1 million nest egg in the scam. She is now living on just half the monthly retirement stipend she had planned. Michael’s warning to others? “Frankly, this could easily happen to you. You’re not protected.”

In the years since Madoff was sentenced to 150 years in prison, private attorneys have worked to return $11 billion to defrauded investors, including Michael – filing more than 120 class actions related to Madoff. Investors also recovered $218 million in a class action against JP Morgan, which helped cover up the scheme. While Madoff’s scheme was not conducted through a publicly-traded company, Michael’s story illustrates how investors benefit when they band together in complex fraud cases – an option that would be foreclosed for fraud involving public companies if the SEC permits forced arbitration.