What You Need to Know
- Christopher Gerold, a Lowenstein partner and former chief of the New Jersey Bureau of Securities, will lead the investigation.
- An Atlanta Superior Court judge ruled that Wells Fargo had manipulated the FINRA arbitration process.
- FINRA takes this matter very seriously, said CEO Robert Cook.
The Financial Industry Regulatory Authority is ordering an independent review of an arbitration decision in favor of Wells Fargo that was thrown out in court when a judge found that the wirehouse had manipulated the arbitrator selection process, the regulator said Friday.
FINRA says it has hired the Lowenstein Sandler law firm to review how FINRA Dispute Resolution Services complied with its rules, policies and procedures for arbitrator selection in the proceeding, in which a panel denied an investor’s claim against Wells Fargo.
On Feb. 2, Atlanta Superior Court Judge Belinda Edwards ruled that Wells Fargo and its counsel “manipulated” FINRA’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.
“We take this matter very seriously,” Robert Cook, FINRA president and CEO, said Friday in a statement.
“FINRA recognizes the importance of maintaining trust in the system and is committed to ensuring the DRS arbitration forum is operated in a fair and neutral manner,” Cook continued. “In keeping with that commitment, FINRA’s Audit Committee has engaged an independent, outside party to review how the arbitrator selection process was carried out in this case, and to determine whether any improvements to the process may be warranted. FINRA will make the results of this review public.”
Christopher Gerold, a partner in Lowenstein’s Securities Litigation and Corporate Investigations & Integrity Practice groups, will lead the independent review and report the firm’s findings directly to the Audit Committee of FINRA’s Board of Governors.
Prior to joining Lowenstein in January, Gerold was chief of the New Jersey Bureau of Securities from 2017 to 2021 and was president of the North American Securities Administrators Association.
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.