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.

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Harold Geller recently spoke with The Globe and Mail about that question following reports of a second TD Direct Investing customer alleging significant losses from unauthorized trades involving a volatile stock.

According to The Globe and Mail, the investor alleges that scammers gained access to his account, sold approximately $234,000 of his existing investments and purchased nearly $355,000 in shares of a little-known Chinese company. The investor says he was left with a loss of approximately $93,000.

The report follows an earlier case involving another TD Direct Investing customer who alleges that unauthorized transactions were used to purchase more than $5 million of the same security, resulting in losses of approximately $4.5 million. TD has denied liability in that proceeding, and the allegations have not been tested in court.

When should an investment dealer intervene?

For investors, unauthorized trading in an investment account can raise questions that go beyond how access to the account was obtained. Depending on the circumstances, questions may also arise about unusual transaction activity, verification of trading instructions and the steps taken by an investment dealer after suspicious activity is identified.

Speaking with The Globe and Mail, Harold noted that investment dealers often have authority to delay trades to verify the legitimacy of an investor’s instructions. At the same time, delaying a transaction can create its own risks in a rapidly moving market.

Harold also noted that current regulations provide little guidance about when a financial institution should reasonably be expected to pause an unusual trade to protect an investor’s account from fraud.

What should investors do if they discover unauthorized trades?

An investor who discovers potentially unauthorized activity should contact their investment dealer or financial institution promptly and document what has occurred. Account statements, transaction records, communications with the dealer and records relating to access to the account should be preserved.

Where unauthorized trading has resulted in a significant financial loss, an investor may also wish to obtain legal advice about the circumstances of the transactions and their rights.

About Harold Geller

Harold Geller is a Partner at Sotos LLP and leads the Sotos Investor Protection Group. He has assisted more than 1,500 investors and represents individuals who have suffered significant financial losses.

Sotos Investor Protection Group represents investors in disputes involving investment dealers, financial institutions and investment advisors, including matters involving unsuitable investments, complex or high-risk investment strategies, liquidity restrictions and other circumstances resulting in significant investment losses.

Read the full article in The Globe and Mail: “Second TD investor alleges fraudulent trades involving obscure Chinese stock.”

If you have suffered significant investment losses and have questions about your legal rights, contact Harold Geller at hgeller@sotos.ca or 416.863.5603, or Matthew W. Taylor at mtaylor@sotos.ca or 416.572.7315.

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