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Regulation and Compliance > Litigation

Wells Fargo Appeals FINRA Arb Ruling Struck Down in Court

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What You Need to Know

  • Wells Fargo is appealing a Georgia judge’s ruling that Wells Fargo and its counsel manipulated FINRA's arbitrator selection process.
  • The attorney handling the matter for Wells Fargo is a former Georgia Supreme Court chief justice.
  • FINRA has ordered an independent review of the decision at issue, in which it denied an investor's claim against Wells Fargo.

Wells Fargo is appealing a Georgia judge’s ruling that Wells Fargo and its counsel “manipulated” the Financial Industry Regulatory Authority’s arbitrator selection process and violated the FINRA Code of Arbitration Procedure.

On Wednesday, Wells Fargo Clearing Services and Wells Fargo Advisors filed an appeal in the Superior Court of Fulton County seeking relief from “all errors and rulings adversely affecting them,” including those set forth in the Jan. 25 ruling by Atlanta Superior Court Judge Belinda Edwards.

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 June 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.

Edwards ruled that Wells Fargo denied investors their contractual right to a neutral, computer-generated list of potential arbitrators, saying its lawyer came to an “unwritten agreement” with FINRA to exclude certain arbitrators from consideration.

“Permitting 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,” Edwards wrote. FINRA said there was no such agreement.

The appellate attorney handling the matter for Wells Fargo is former Georgia Supreme Court Chief Justice Harold Melton, who’s now with the law firm Troutman Pepper Hamilton Sanders. “That is impressive,” said Michael Edmiston, president of the Public Investors Advocate Bar Association.

Edmiston told ThinkAdvisor in a previous interview that Edwards’ ruling raises alarm bells about “the apparent corruption of the arbitrator selection process.”

A spokesperson for Wells Fargo Advisors told ThinkAdvisor in a previous statement that it would appeal the decision.

“We adamantly deny all of the allegations cited in this decision,” the spokesperson said. “FINRA has well-established rules for admitting arbitrators to its roster and the process is fair to all parties. Wells Fargo Advisors followed this process, and both parties had the opportunity to make arguments regarding each of these issues to the arbitrators and to FINRA.”

PIABA has called for the Securities and Exchange Commission to investigate and for Congress to hold hearings on FINRA’s “operation of its arbitration forum.”

On Feb. 18, FINRA said that it has ordered an independent review of the decision.

“We take this matter very seriously,” Robert Cook, FINRA President and CEO, said in a statement.

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.

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.

Gerold is the former president of the North American Securities Administrators Association and chief of the New Jersey Bureau of Securities.


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