What You Need to Know
- Wells Fargo and its counsel manipulated the arbitrator selection process, judge rules.
- FINRA had secretly agreed to remove certain arbitrators from the computer-generated list, the judge wrote.
- PIABA wants the SEC to investigate and Congress to hold hearings on FINRA's arb process.
A judge in Georgia has ruled that Wells Fargo and its counsel “manipulated” the Financial Industry Regulatory Authority’s arbitrator selection process and violated the FINRA Code of Arbitration Procedure, denying investors their contractual right to a neutral, computer-generated list of potential arbitrators.
Judge Belinda Edwards “excoriated the conduct of FINRA Dispute Resolution in managing the arbitration selection process and the arbitration panel for permitting a variety of misconduct by Wells Fargo Clearing Services and its counsel,” the Public Investors Advocate Bar Association said Wednesday in a statement.
Edwards’ order centered on a 2017 FINRA dispute filed by Wells Fargo Advisors’ client Brian Leggett over more than $1.1 million in losses that he said he incurred at the hands of a Wells Fargo broker. In 2019, an arbitration panel denied Leggett’s claim.
In 2021, Leggett asked the Georgia court to vacate the Wells Fargo award while Wells Fargo asked the court to confirm it.
On Jan. 25, Edwards vacated the FINRA arbitration decision, finding that Wells Fargo and its counsel manipulated the arbitration process. The manipulation was accomplished with the help of FINRA Dispute Resolution, according to Edwards.
Of immediate concern, according to PIABA, “is the apparent corruption of the arbitrator selection process.”
The group called for the Securities and Exchange Commission to investigate and for Congress to hold hearings on FINRA’s “operation of its arbitration forum.”
PIABA is an association of lawyers who represent investors in disputes with the securities industry.
According to the order, Wells Fargo and its attorney had an unwritten agreement with FINRA that FINRA would remove certain arbitrators from any list presented to counsel Terry Weiss.
Judge Edwards found, “[p]ermitting one lawyer to secretly red line the neutral list makes the list anything but neutral, and calls into question the entire fairness of the arbitral forum.”