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Business Brokerage By Hartley Bernstein - Contributing ColumnistConfidentiality agreements are routine when brokers settle with their customers. Sometimes, however, they go too far.

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Real Estate Broker June 8, 2004 (AXcess News/StockPatrol) New York - Investors who settle disputes with their brokers are routinely asked to sign detailed settlement agreements, usually prepared by lawyers for the brokerage firm. The customer, who is happy to be recouping some - hopefully significant - portion of his or her losses, is eager to sign on the dotted line and deposit the check. Consequently, he or she is unlikely to voice a vigorous objection to the so-called "boilerplate" provisions of the agreement. From the customer's point of view, the dispute is over.

Mortgage brokers earn their living from loan origination fees, which are limited to less than 6 percentage points of any home mortgage loan, and are only paid when the deal is closed. In a very competitive market, brokers may only be able to charge 1 or 2 percentage points for any loan. Even though fewer homeowners are now interested in refinancing, time mortgage to purchase a home, term home mortgage loans.

Agency Brokerage Spark Not so for the brokerage firm, which may have sound reasons for inserting the "usual" "boilerplate provisions." Often, such settlement agreements provide that the parties will not make any negative or defamatory statements about one another, and require the customer to keep the terms of the settlement confidential.

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Business Broker Confidentiality makes considerable sense - at least from the broker's point of view. Brokerage firms do not want to encourage other customers to file arbitrations, or signal a predisposition to generous settlements. But there may be an even more compelling reason for brokers to keep a lid on settlement details - to keep them from regulators.

Brokerage Account As it turns out, confidentiality has its limits, and the NASD wants to make certain that they are enforced. On June 2, 2004, the NASD issued a Notice to its members, reminding them that confidentiality provisions that impede NASD investigations are prohibited. The NASD Notice does not express the same concern for confidentiality agreements that may impede customer claims.Advertisement

Stock Broker Specifically, the NASD chides members for including confidentiality provisions that prohibit or discourage the customers from revealing the terms of the settlement in response to inquiries from the NASD or other securities regulators.

Brokerage Online Stock Trading In order to obstruct disclosure, settlement agreements may require regulatory authorities to obtain a court order or subpoena, or pursue some other legal process, before the parties are permitted to disclose the terms of the settlement or the underlying facts of the dispute to the regulator. The NASD points out that such restrictive language is especially problematic for self-regulatory organizations, such as NASD, that do not have the legal authority to compel cooperation by customers or other persons not subject to their jurisdiction.

Broker Justin Ticket The NASD noted the "chilling effect" of settlement agreements that require customers to notify the settling brokerage firm before providing information to regulators. Customers may be less inclined to cooperate with regulators when they must first make their former broker aware of their contemplated cooperation.The NASD also condemned efforts by brokerage firms to require settling customers to withdraw or alter claims that have been filed with regulators. As the NASD points out, these provisions are obstructive and frustrate the ability of regulators to enforce prevailing regulations. They also interfere with the ability of other law enforcement agencies to take appropriate action.For investors who have legitimate complaints against their brokers, the NASD's Notice to its Members offers limited solace. It protects the ability of regulators to investigate brokerage misconduct, but does little to help other investors who have suffered at the hands of those same brokers. The NASD does not condemn confidentiality - as long as it is immune from its effects. Brokerage firms can still concoct confidentiality provisions that prevent customers from sharing information with one another.

Real Estate Brokerage Investors want, and deserve, something more.

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