Judge rips Wells, Finra, in decision over arbitration claim

Gavel & Money.

At the center of the judge's order to vacate the arbitration decision were questions about whether or not Finra arbitration was a neutral forum for investors.

A Georgia Superior Court judge took a serious whack at Wells Fargo Advisors, as well as the Financial Industry Regulatory Authority Inc., in a January order that dismissed an arbitration claim that Wells Fargo had won 2½ years ago involving a client who sued the firm for mismanaging his account.

At the center of the judge’s order to undo Wells Fargo’s July 2019 victory was her condemnation of alleged manipulation of the way arbitration panelists, who ultimately approve or deny damages in such claims, are selected under the aegis of Finra. Any mismanagement would be in violation of industry rules and a decades-old process that uses a computer-generated list to select arbitration panelists in an effort to reach neutrality between the two sides.

“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,” Fulton County Superior Court Judge Belinda E. Edwards wrote in an order to vacate, or dismiss, the decision in favor of Wells Fargo Advisors.

Through its arbitration division, Finra oversees hundreds of investor claims, with potentially hundreds of millions of dollars at stake, each year.

At the heart of the Finra system, which has drawn the ire of the likes of Sen. Elizabeth Warren, D-Mass., is the perceived impartiality of its three-person panels of professionals, dubbed Finra arbitrators, who ultimately decide for or against investors and broker-dealers and also assign dollar amounts of compensation.

“Finra is supposed to be a neutral forum and this order in Georgia raises serious issues about that,” said Adam Gana, managing partner at Gana Weinstein.

In 2017, Wells Fargo Advisors client Brian Leggett filed a complaint in Atlanta with Finra arbitration, suing the firm and his broker for $1.5 million and alleging that Wells Fargo failed to adequately train, monitor and supervise two registered reps who mismanaged his account. In 2019, Leggett lost that claim, with the three Finra arbitrators denying the allegations, according to the decision at the time.

Either the claimant or the defendant can go to court to overturn an arbitration panels decision, but they’re highly unlikely to get a favorable ruling. On Jan. 25, however, Edwards ordered the dismissal of Wells Fargo’s legal victory over its client Leggett.

Edwards condemned Wells Fargo, its attorney Terry Weiss and Finra for allowing manipulation of the choice of arbitrators that would, in the end, favor the brokerage firm over the client, thus creating a disparity in the system.

Weiss was allowed, with a nod and a wink from Finra, to manipulate Finra’s “neutral list” of arbitrators in the Leggett lawsuit, according to Edwards’ order, essentially allowing one side to put the thumb on the scale of justice.

“Wells Fargo and its counsel, Terry Weiss, admit that Finra provides any client Terry Weiss represents with a subset of arbitrators in which certain arbitrators (at least three, but perhaps more) are removed from the list Wells Fargo agreed, by contract, to provide to the investors in the event of a dispute,” Edwards wrote.

Decisions about arbitrators were made in the dark, according to Edwards.

“The record here shows that Wells Fargo and its counsel, Terry Weiss, insisted on three potential arbitrators be removed from the neutral list itself, prior to arbitrator selection, without notification to any parties, in every case in which Terry Weiss appeared for any client,” she wrote.

“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 we intend to appeal this decision,” a spokesperson for Wells Fargo Advisors wrote in an email.

The attorney, Terry Weiss, didn’t immediately reply Wednesday for a request to comment.

A Finra spokesperson said the criticism of Finra was misguided and not accurate.

“There has never been any agreement between Finra Dispute Resolution Services and attorney Terry Weiss regarding appointment of arbitrators,” the spokesperson wrote in an email. “Any assertions to that effect are false.”

Finra has “reviewed all cases involving Terry Weiss as counsel and none of the three arbitrators in question was excluded or removed from ranking lists prior to sending the lists to the parties,” according to the spokesperson.

Plaintiffs’ attorneys, who sue brokerage firms on behalf of clients, were quick to question Finra and its mandatory arbitration process, which has recently been questioned by Congress.

“This decision opens up a Pandora’s box of horrific issues for Finra, like which other firms and which other defense lawyers have a secret agreement with Finra to remove arbitrators,” said Andrew Stoltmann, a plaintiff’s attorney. “It strikes at the heart of the fairness of the arbitration process, which is the arbitrator selection.”