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Carlyle IPO to Test Mandatory Arbitration in Shareholder Disputes

Jaclyn Jaeger | January 31, 2012

Private equity firm Carlyle, apparently trying to do an end-run around the potential for class-action litigation as it prepares to go public, has ignited a debate about whether a company can require shareholders to use binding arbitration rather than class-action lawsuits to settle disputes.

The firm, which is preparing to conduct an initial public offering this spring, included in its Jan. 10 registration statement a provision mandating that all shareholder disputes be settled through arbitration, and that all arbitration be brought in an individual capacity; class-action arbitration would be prohibited.

Historically, the Securities and Exchange Commission has disliked the idea of mandatory shareholder arbitration charter provisions. In 1990 the Commission blocked an IPO by a savings and loan company because it included a shareholder-arbitration clause in its corporate charter. The company ultimately removed it.

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