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Court vacates FINRA award, rejecting ‘agreement’ with Wells Fargo

A Superior Court in Georgia overturned a previously settled arbitration award in Wells Fargo’s favor, arguing that Wells Fargo’s attorney “manipulated the FINRA arbitrator selection process” and FINRA’s Code for Arbitration Proceedings. violated. In response, an investor advocacy group called for the Securities and Exchange Commission and Congress to inquire into FINRA’s arbitration process.

Fulton County Superior Court Justice Belinda Edwards wrote the ruling against petitioners Brian Leggett and Bryson Holdings to vacate the more than $80,000 award, saying they were denied the right to a computer-generated neutral list of arbitrators Was and Wells Fargo’s attorneys were competent. Special arbitrators removed as an option for selection.

“Permission of an attorney to secretly red line renders the neutral list neutral, and calls into question the overall impartiality of the Forum,” the decision read.

In 2015 and 2016, Leggett and Bryson Holdings lost more than $1.1 million in a merger arbitration investment strategy recommended by their Wells Fargo broker, which, the court said, allowed their accounts to be more concentrated in certain stocks, according to Edwards’ decision. Gave permission. and industry.

They initiated arbitration proceedings against Wells Fargo, and FINRA supplied both parties with a number of potential arbitrators from its “neutral list selection system”, which was created in 1998 and used to generate a random list of potential arbitrators for cases. was designed for.

In July 2017, before the proceedings began, Wells Fargo’s attorney submitted a letter to FINRA asking that one of the potential arbitrators, Fred Pinckney, be removed from the list, arguing that he had called for Wells’ lead. Lawyer “upheld personal bias” against Terry Weiss. , Leggett argued that the broker/dealer had not provided any evidence to support the claim.

In fact, Weiss and Wells Fargo insisted on FINRA to remove the three arbitrators from the neutral list even before the selection process, according to the judge’s decision, without notifying Leggett. The only reason the court knew about the secret settlement was because FINRA mistakenly included one of those arbitrators on the neutral list, according to Edwards.

Leggett criticized the alleged “unwritten agreement” between FINRA and Weiss regarding the removal of three arbitrators (called Postel arbitrators in the decision) from the dispute, with Leggett’s lawyer calling it “extremely disturbing” in a letter to FINRA. Said and argued that removing any tacit settlement arbitrators from being considered as such would put the entire arbitration process of FINRA in question.

“Mr. Weiss’s statement raises a number of questions that must be answered,” read the letter from Leggett’s lawyer to FINRA. “Was other Postal arbitrators removed from the list provided to me in this case? Does Mr. Weiss have secret agreements with FINRA with respect to other arbitrators in other cases?

Despite alleged disclosures about a settlement between FINRA and Wells Fargo’s attorney, the FINRA director of dispute resolution pulled Pinckney out of the dispute. Wells Fargo was also successful in removing another arbitrator from being a possible option on the grounds that other attorneys for its firm represented the plaintiffs in a lawsuit against Wells Fargo.

In response to Edwards’ decision, a FINRA spokesperson said that the agency reviewed all matters relating to Weiss as attorney, and excluded any of the three arbitrators under consideration before being referred to Wells Fargo and Leggett from the ranking list. was not done, and cited this fact. That Pinckney was included in the list as evidence.

“There has never been an agreement between FINRA Dispute Resolution Services and Attorney Terry Weiss regarding the appointment of arbitrators. Any claim to that effect is false,” said a FINRA spokesperson. We strive to provide the Forum with the fairest, most efficient programs available and stand behind the integrity of our neutral list selection process.”

A Wells Fargo spokesperson “strongly” denied all allegations involved in the decision, and said the company intends to appeal.

“FINRA has well-established rules for admitting arbitrators to its roster and the process is fair to all parties,” he said. “Wells Fargo Advisors followed this process, and both parties had the opportunity to argue with the arbitrators and FINRA regarding each of these issues.”

In response to the decision, Public Investors Advocates Bar Association (PIABA) President Michael Adamiston called for investigation by the SEC and possible congressional hearings, Recently citing Government Accounts Office (GAO) Report questioning the rigor of the SEC’s oversight on FINRA.

“Investors should have assurance that the industry-sponsored FINRA arbitration platform is not raising scale against investors except for arbitrators who have issued pro-claimant awards in prior cases,” Adamiston said.

PIABA has been a frequent and outspoken critic of FINRA’s arbitration process, Arguing that the number of unpaid arbitration awards There was a year-on-year increase between 2019 and 2020, with claims that 24% of funds provided that year went unpaid. Advocacy group also called on FINRA arbitrators to act Accepting removal requests nine times out of 10Arguing that FINRA needs to take part in the process to ease or harm investors who oppose such a request.

In his decision, Edwards also agreed with the petitioners that the arbitrators had unfairly denied their request to adjourn their arbitration hearing, and criticized the arbitrators for “relevant, non-cumulative testimony from third-party witnesses and To limit the cross examination” of refusing to listen. Of an expert witness for Wells Fargo.

The judge also found that audio tapes not available to plaintiffs during the case showed that a Wells Fargo witness had “caused a medical emergency to materially alter his testimony and offer perjury.” Delay used.” Ultimately, the decision argued that the FINRA arbitrators “wrongfully and without legal justification” imposed heavy charges on Leggett at the conclusion of the proceedings when they ruled in Wells Fargo’s favor.

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