Harold Geller Calls for Reform of NDAs in Investment Dispute Settlements

Sotos LLP partner Harold Geller is calling for clear limits on the use of non-disclosure agreements in the settlement of investment and insurance disputes.

In a new opinion article published by Investment Executive and Advisor.ca, Harold examines how broad confidentiality provisions can affect investors, regulatory reporting and the ability of other potentially affected clients to learn about alleged wrongdoing or negligence.

Harold argues that non-disclosure agreements can serve a legitimate role in resolving disputes, particularly when protecting confidential settlement amounts. The concern, he writes, arises when NDAs extend much further and restrict investors from discussing the underlying facts, allegations or existence of a settlement.

When NDAs can become an investor-protection issue

Harold identifies several concerns with broadly drafted NDAs, including provisions that:

• are difficult for retail investors to understand;
• define confidential information so broadly that investors may believe they cannot discuss the circumstances underlying their claim;
• restrict communications about allegations already contained in legal pleadings; and
• use liquidated damages provisions that may discourage investors from speaking about their experience.

He also examines the implications for Canadian securities regulation. Complaints and information from investors can play an important role in regulatory investigations, and restrictions on disclosure may reduce the information available to regulators and other potentially affected clients.

Six proposed reforms

Harold proposes six steps for securities and insurance regulators to consider:

1. establish clear guidance on acceptable and unacceptable NDA provisions;
2. require standard exceptions allowing investors to communicate with regulators, law enforcement and professional advisers;
3. require agreements to be written in plain language;
4. treat improper use of NDAs as a compliance issue;
5. require firms to warn other potentially affected clients where public disclosure is restricted; and
6. encourage investors to obtain independent advice before signing an NDA.

His central argument is that confidentiality and investor protection do not need to be mutually exclusive. A more defined regulatory framework could preserve legitimate confidentiality while ensuring that settlement agreements do not unnecessarily restrict reporting, accountability or access to information.

Read Harold’s full article in Investment Executive or Advisor.ca.

Harold Geller is a partner at Sotos LLP and leads the Sotos Investor Protection Group, representing investors in disputes involving investment losses, financial advisers, dealers and other investment-related matters.