Q: I recently received my first written client complaint. My manager has told me that the firm will split with me any losses we might have to pay 50/50. If I leave the firm and go to another firm before this case goes to arbitration/mediation, whatam I liable for in damages? Also, what is the new firm liable for?

—N.A., via email

A: First, be aware of the difference between "indemnification" and "contribution." Indemnification says that if the firm has to pay money to the customer, the rep is liable to the firm for the full amount. Contribution says that if the firm has to pay money to the customer, the rep is liable to the firm for a certain percentage (less than 100%) of that amount. If the rep is a big producer, the firm may pay the whole amount to keep him happy. It would be up to an arbitration panel (assuming the firm filed a complaint against you) to decide what percentage of the damages you will be held responsible. If your employment contract contains an indemnification clause, then all the firm would have to do is prove the existence of the contract and the fact that it paid money. If there's no contract, the firm would typically have to show that it was free from any fault before it would be entitled to recover all its money from you. Therefore, agreeing to split any damages with the firm may or may not be in your best interest. If your current employer has agreed to split the cost of damages with you, try to get that in writing. If your branch manager is reluctant to do so then send him a memo or letter (or at least an email) confirming his offer and your agreement. Indicate that he should advise you immediately if your understanding is incorrect. If you agree to reimburse the firm for half of the damages, and you subsequently move to a new firm, that shouldn't affect the agreement unless it contains a provision stating that it's only valid while you're still employed at your old firm. Your new firm shouldn't have any liability unless for some reason the problem continues once you are there.

Q: My firm recently settled an arbitration proceeding involving one of my clients. The firm's insurance paid most of the settlement but there was a deductible that my firm made me pay. If the amount I paid was less than $10,000, do I still have to report the settlement on my U-4?
—H.W., New York

A: Yes. Question 14I(2) of the Form U-4 asks if you have "ever been the subject of an investment-related, consumer-initiated complaint, not otherwise reported under question 14I(1) above, which alleged that you were involved in one or more sales practice violations, and which complaint was settled for an amount of $10,000 or more." It doesn't ask for the amount you contributed to the settlement, only whether the total amount was over $10,000. The only question would be whether the complaint alleged that you were involved in a "sales practice violation" which is defined as "any conduct directed at or involving a customer which would constitute a violation of: any rules for which a person could be disciplined by any self-regulatory organization; any provision of the Securities Exchange Act of 1934; or any state statute prohibiting fraudulent conduct in connection with the offer, sale or purchase of a security or in connection with the rendering of investment advice."

Alan J. Foxman, Esq., is an attorney with the law firm of Lavalle, Brown, Ronan & Mullins, P.A., in Boca Raton, Fla. His comments are not intended to be legal advice. He can be reached at afoxman@lavallebrown.com.