346 U.S. 427 (1953)
Wilko, a customer, brought this action in the United States District Court for the Southern District of New York against respondents, partners in the securities brokerage firm of Hayden, Stone and Company, to recover damages under section 12(2) of the Securities Act of 1933.1 The complaint alleged that on or about January 17, 1951, through the instrumentalities of interstate commerce, the firm induced Wilko to purchase 1,600 shares of the common stock of Air Associates, Incorporated, by false representations that pursuant to a merger contract with the Borg Warner Corporation the stock would be valued at $6.00 per share over the then current market price and that financial interests were buying up the stock for speculative profit, while failing to disclose that Haven B. Page, a director of and counsel for Air Associates, was then selling his own Air Associates stock including some or all that Wilko purchased.2 Two weeks after the purchase Wilko disposed of the stock at a loss and claimed that the loss was due to the firm's misrepresentations and omission of information concerning Page.3
Without answering the complaint, the respondents moved to stay the trial of the action pursuant to section 3 of the United States Arbitration Act. The motion sought to delay proceedings until an arbitration in accordance with the terms of identical margin agreements was had. An accompanying affidavit stated that the parties' relationship was controlled by the terms of the agreements. The firm was willing to arbitrate, but Wilko had failed to seek or proceed with any arbitration of the controversy.4 The margin agreements provided that any controversy arising between the parties under the contract shall be determined by arbitration pursuant to the Arbitration Law of the State of New York and under the rules of either the Arbitration Committee of the Chamber of Commerce of the State of New York, or of the American Arbitration Association, or of the Arbitration Committee of the New York Stock Exchange or such other Exchange as may have jurisdiction over the matter in dispute, as Wilko might elect, before at least three arbitrators.5
The District Court denied the stay. A divided Court of Appeals reversed, and the Supreme Court granted certiorari to review the question.6
Whether an agreement to arbitrate a future controversy is a condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of the Securities Act which section 14 declares void?7
Section 14 of the Securities Act of 1933 voids any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of the Act. The right to select the judicial forum is the kind of provision that cannot be waived under section 14 of the Securities Act.8
Yes. The agreement to arbitrate future controversies restricts the buyer's choice of forum prior to the existence of a controversy.9
The Securities Act was drafted with an eye to the disadvantages under which buyers labor.10 The right to a judicial forum is one of the advantages the Act gives the buyer.11 The effectiveness of the protective provisions is lessened in arbitration because subjective findings on the purpose and knowledge of an alleged violator must be applied by arbitrators without judicial instruction on the law. Their award may be made without explanation or complete record.12
Therefore, the agreement to arbitrate is void under section 14 of the Securities Act.13
Related opinions on this issue
Justice Jackson agreed with the Court's opinion that the Securities Act prohibits waiver of a judicial remedy in favor of arbitration by agreement made before any controversy arose.14 He noted that thereafter the parties could agree upon arbitration.15 However, he found it unnecessary in this case, where there has not been and could not be any arbitration, to decide that the Arbitration Act precludes any judicial remedy for the arbitrators' error of interpretation of a relevant statute.16
Justice Frankfurter dissented, stating that if arbitration inherently precluded full protection of the rights section 12(2) of the Securities Act affords to a purchaser of securities, or if there were no effective means of ensuring judicial review of the legal basis of the arbitration, then an agreement to settle the controversy by arbitration would be barred by section 14.17 He observed that there is nothing in the record to indicate that the arbitral system as practiced in the City of New York would not afford the plaintiff the rights to which he is entitled.18 He emphasized the advantages of arbitration in providing a speedier, more economical and more effective enforcement of rights.19
He noted that arbitrators may not disregard the law and that failure to observe the law would constitute grounds for vacating the award.20 He concluded that on the state of the record before the Court, he would affirm the decision of the Court of Appeals.21