Pub. 1 2012 Issue 3

16 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s A BANKER CALLED ME THE OTHER DAY ASKING about the Signature Validation Program. A customer of a bank was signing up to participate in the U.S. Savings Bond Treasury Direct Program and needed his signature certified by a bank officer. The paperwork provided by TreasuryDirect indicated that a bank officer needed to certify the signature on the forms and include a bank stamp such as a Signature Validation Stamp. I had never heard of the Signature Validation Stamp and I did not know the requirements of the TreasuryDirect Program, so I did some research. First, I researched the Signature Validation Program. The program, started in 2008, appears to be administered by the same people who administer the STAMP Medallion Signature Guarantee Program. A STAMP Signature Guarantee is not allowed to be used on non-security documents. The new Signature Validation Stamp was designed to be used on non-security type documents. The idea behind the Signature Validation Program appears to be that some parties have required a notary witness when documents are completed and submitted. However, a notary provides little benefit to someone who relies upon it because it takes so little to become a notary and some notaries do not always take their responsibility seriously. When relying on a notary, it is not possible to evaluate the quality of the notary. Many people would prefer a bank officer, rather than a notary, witness a document. But further research showed that the Signature Validation is not anything like a notary signature. A notary only identifies the person and witnesses that the person signs the document. Notaries do not have any responsibility to determine if the signer has authority to sign a document. They do not need to understand the document and related facts in order to make any determination about authority to sign. To join the Signature Validation Program, a bank must sign an SVP Indemnification Agreement before it can obtain a Signature Validation Stamp. In the SVP Indemnity Agreement, the bank agrees to indemnify everyone who relies on the stamp imprint and warrants that (a) the signature on the document is genuine, (b) the signer was known by or otherwise satisfactorily identified, and (c) the signer had authority to sign the document. This is a very broad indemnity agreement in which the bank willingly chooses to financially protect everyone who relies on the signature for their loss if it is later found that the signer exceeded his authority when he signed that document. While a bank can know or identify a signer, warranting that a person has actual authority to sign a particular document is much more difficult. It requires the bank officer to completely understand the document being signed and requires the officer to obtain and retain documentation prov - ing the person has authority to sign. A bank may be able to document a signer’s status as a corporate officer or trustee. It is much harder to document whether a person has authority to sign a particular document. In many cases, it would be impossible for a bank officer to determine if a person had actual authority to sign a particular document. This is a completely new liability which a bank creates for itself by signing a contract. It is not a liability created by law. Some brokers are apparently asking their customers to get a Signature Validation Stamp on brokerage account opening agreements. If the bank uses the Signature Validation Stamp, the bank is agreeing to be financially responsible to the broker for any loss if the person signing the broker- age account opening document did not have actual authority to sign that document. There is no maximum to the bank’s potential liability. If the person signing was a corporate officer who was opening an account in the name of a corporation, the officer might have exceeded his authority when opening the account. The officer may have author - ity to open an account for the benefit of the corporation, but would be exceeding his authority when he signed a document opening an account which he plans to use to funnel corporate money for his own benefit. The bank has agreed to indemnify the broker for whatever loss the broker incurs in reliance on the signature on that account opening document if the signer did not have authority to sign that document. Potentially, the bank could be liable for every dollar which went through the brokerage account for years. SECURITY OFFICER’S BY-WORD SIGNATURE VALIDATION PROGRAM BANKS SHOULD NOT PARTICIPATE! Charles M. Towle, Senior Vice President Kansas Bankers Surety Company