Securities & Stock Broker Fraud Blog
According to Advisor Hub and FINRA Website, in a decision overturning an arbitration award, a Georgia state court judge vacated an Arbitration decision in which Wells Fargo successfully beat an investor’s $1.7 million damage claims over investment losses.
According to the Order, Judge Belinda E. Edwards based her ruling in part on grounds that the Financial Industry Regulatory Authority administrators had allowed Wells Fargo and an outside lawyer to “manipulate” the arbitrator selection process. The article in Advisor Hub notes that “A Finra dispute resolution director improperly granted Wells Fargo’s request to strike two arbitrators, including one from a computer-generated “neutral” list, as part of an unwritten side agreement between the regulator and Wells’ lawyer.”
“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,” Judge Edwards wrote in the January 25 ruling.
Additionally, the Judge also found that Wells had “committed fraud in obtaining the award”, including perjury by one of its witnesses, which qualified the decision for vacatur under the limited grounds provided in the Federal Arbitration Act.
The Public Investors Advocate Bar Association called for “an immediate investigation” by the Securities and Exchange Commission and hearings in Congress “as to FINRA’S operation of its arbitration forum,” according to its release posted. Additionally, the release stated, “Of immediate concern to PIABA is the apparent corruption of the arbitrator selection process. The Court found Wells Fargo and its counsel manipulated the arbitration process to deny Claimants their right to a neutral arbitration panel.”
“The secret agreement undermines the very neutrality of the computerized system,” it added, referencing the “surprising revelation of a corrupted arbitrator appointment system.”
A spokeswoman for Finra denied that there was ever any agreement between its representatives and Wells’ outside lawyer.
“We have reviewed all cases involving this counsel and none of the three arbitrators in question was excluded or removed from ranking lists prior to sending the lists to the parties,” the spokeswoman said. “As the neutral administrator, we continually strive to make the FINRA forum the fairest, most efficient program available and stand behind the integrity of our neutral list selection process.”
Wells intends to appeal the ruling, according to spokesperson Jackie Knolhoff.
“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,” Knolhoff said in a statement.
Under Finra rules, what is supposed to occur is each side is provided a randomly selected “neutral” list of qualified industry and public arbitrators from which they can rank and strike names until a final three are chosen.
After the Claimants objected to the removal of a particular Arbitrator, Wells’ lawyer sent another letter in which he disclosed “for the first time” an agreement between Finra about “the pool of arbitrators available to his clients in all of his cases,” Judge Edwards writes.
In the second letter, this lawyer referred to a 2013 case in which he defended a brokerage firm and had lost a bid to vacate that award over alleged arbitrator misconduct. He had then reached an agreement with Finra to have the three arbitrators in that case removed from any future lists of prospective panelists in his cases.
“It was made clear to me verbally that none of the [those] arbitrators would have the opportunity to serve on any one of my cases given the horrific circumstances surrounding the underlying case,” he wrote to Finra’s dispute resolution director.
“The record shows that the arbitrator fully disclosed his firm’s activities prior to arbitrator selection,” Edwards wrote in the ruling. “The newly filed case did not create any newly disclosed interest or bias against Wells Fargo.”
Edwards also found evidence that one of Wells’ key witnesses had altered key testimony about industry rules against texting with clients over the course of the hearings.
She also said the arbitrators “improperly and without legal justification imposed” $83,000 in costs and fees for the Finra hearing on investors and overturned that aspect of the award as well.
The investor in the case, had sued Wells and a broker at the firm in 2016 over alleged losses tied in part to Amazon call options, according to a copy of the underlying award.
Miller Stern Lawyers, LLC, a Baltimore Securities Fraud Law firm, currently represents investors for claims of investment losses and FINRA misconduct, as well as UIT switching, unauthorized trading, over concentration, irregular options trading, margin and unsuitability claims, broker fraud, securities fraud, securities litigation and other broker and broker/dealers for investment losses and fraud. If you or anyone you know have experienced investment losses from the actions above or other situations, please call 410-LAW-FIRM ( 410-529-3476 ) or fill out the contact us form for a no cost consultation and evaluation of your claim.