The Georgia Court of Appeals on Tuesday reversed a January decision that sent shockwaves through the system in which investors' and employees' legal complaints against brokerage firms are decided, causing the Financial Industry Regulatory Authority Inc., which oversees the arbitration system, to launch a review.
The appeals court ruled 3-to-0 that the Superior Court's earlier ruling had not provided a proper basis for vacating the arbitration award, which stemmed from a claim that Wells Fargo Advisors had won in 2019 involving a client who sued the firm for mismanaging his account.
"We were always confident in the merits of our appeal and are pleased that the Georgia Court of Appeals completely validated our position," a Wells Fargo Advisors spokesperson wrote in an email. "As a result, the original arbitration award in favor of Wells Fargo has been reinstated. Additionally, a comprehensive and detailed investigation requested by Finra also found that we acted properly.”
After losing in January, Wells Fargo Advisors filed its appeal in April, arguing that the judge, Fulton County Superior Court Judge Belinda E. Edwards, was wrong and that the arbitration decision it had won initially should stand and not be overturned.
The dispute has been brewing for half a decade. 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. Two years later, Leggett lost that claim, with the three Finra arbitrators denying the allegations, according to the decision at the time.
Leggett could not be reached to comment.
At the center of Edwards' order earlier this year to undo Wells Fargo’s 2019 arbitration win was her condemnation of alleged manipulation in the way that arbitration panelists, who ultimately approve or deny damages in such claims, are selected under the aegis of Finra.
In the face of that criticism, Finra hired an outside law firm, Lowenstein Sandler, that in June came to two key findings: First, the law firm found no evidence of tampering or improper agreements to remove certain arbitrators from industry cases. Second, it cited the need for better transparency about how arbitrators are selected for specific cases.
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