For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, MetLife Securities, Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of MetLife Securities, Inc., Respondent (AWC 20100218010-01, January 4, 2013).
MetLife Securities has been a FINRA member firm since 1983. According to the AWC, the firm did not have any prior relevant disciplinary history.
The AWC alleges that from January 2010 through April 2012, MetLife Securities Inc. entered into 35 separate settlement agreements with customers that contained inappropriate language purporting to restrict the ability of the settling customers to provide information to FINRA. The AWC asserted that the cited language in the customer settlements was inconsistent with FINRA Rule 2010, as more fully discussed in Notices to Members 95-87 and 04-44.
In accordance with the terms of the AWC, FINRA imposed upon MetLife Securities a Censure and a $25,000 fine.
I haven't seen one of this improper settlement language cases in a while but they now seem to be resurfacing. In the pennystock and boilerroom days of the '80s and '90s, many shady brokerage firms viewed customer settlements as the cost of doing business and routinely sought to protect their high flying salesmen by adding a nice shiny set of handcuffs on a settling customer's ability to blow the whistle to the regulators. Not that things have changed all that much on Wall Street by 2013. The industry still tries to pursue ways to muzzle complaints to regulators and, to be fair, customers' attorneys have also figured out how to work that leverage to their advantage. It's all one nice dysfunctional family.
It's always helpful to read the source materials in a matter such as this, so, let's take a gander at FINRA Notice to Members 04-44 (June 2004):
Settlement Agreements Impermissible Confidentiality Provisions and Complaint Withdrawal Provisions in Settlement Agreements:
The purpose of this Notice is to remind members that the use of certain provisions in settlement agreements with customers or other persons that impede, or have the potential to impede, NASD investigations and the prosecution of NASD enforcement actions violates NASD Rule 2110, which requires members to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business. Specifically, some member firms continue to use confidentiality provisions that prohibit or restrict the customer or other person from disclosing the settlement terms and the underlying facts of the dispute upon inquiry to NASD or other securities regulators, despite repeated NASD communications cautioning members against this practice.1 In addition, some member firms require customers to withdraw complaints filed with NASD or other securities regulators as a condition to settlement, or require customers to provide false or misleading affidavits that repudiate or otherwise contradict earlier factual claims made by such customers, in contravention of NASD rules. Accordingly, members and their associated persons are reminded that the use of such confidentiality provisions or complaint withdrawal provisions, or compelling customers or other persons to provide false or misleading affidavits, violates Rule 2110.
Also see: In the Matter of the Application of Stratton Oakmont, Inc. For Review of Disciplinary Action Taken by NASD (Securities and Exchange Act of 1934 Rel. No. 38390 / March 12, 1997). In this 1997 SEC Opinion, we are told that;
In November 1993, the NASD staff sought the cooperation of Harold Copeland, a former Stratton customer, in the NASD's investigation of a complaint Copeland had made against the Firm. The NASD subsequently learned that Copeland had settled the matter with Stratton in October 1993, and that the confidentiality provision in the settlement agreement executed by the parties prevented Copeland from disclosing to the NASD information relating to the matter. This confidentiality provision stated:
I hereby also agree that I will keep confidential the terms of this settlement and will not disclose information relating to the settlement or the subject matter of my claims or allegations against your firm or any officers, directors or employees acting in those capacities and subject only to a court order of competent jurisdiction or a lawful subpoena issued by a governmental agency and upon reasonable notice to you so that you can have an opportunity to object and/or take lawful steps to prevent the disclosure. . .
By now, you'd think that most of FINRA's member firm community had gotten the word about these inappropriate restrictions in settlements. Of course, part of the problem may well be that FINRA doesn't exactly help itself out. In this MetLife matter, for example, you'd sort of think that beyond slapping the firm's wrist with a lousy $25,000 fine that the self-regulatory organization might have at least included in the AWC the actual language that proved unacceptable. I mean, geez, if you're so worked up over whatever number of sentences are in this settlement agreement, howsabout you spell it out for us - you know, so that we can delete similar non-compliant language or at least understand what the problem was? It's not as if MetLife has a reputation for being among the industry's recidivist firms - quite to the contrary. As such, if Snoopy's firm stumbled with the language in its settlement agreement then maybe other firms might unintentionally be following down the same rocky road.