Page 44 - Investment Advisor April/May 2022

BROKER-DEALER BEAT

By Melanie Waddell

FINRA Orders Review of Wells Fargo Arb

Ruling That Was Struck Down in Court

he Financial Industry Regu-
latory Authority is ordering an
Tindependent review of an arbi-
tration decision in favor of Wells Fargo
that was thrown out in court when a
judge found that the wirehouse had
manipulated the arbitrator selection pro-
cess, the regulator said in late February.
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 Judge Belinda Edwards ruled
that Wells Fargo and its counsel
“manipulated” FINRA’s arbitrator dent review and report the firm’s find- The Public Investors Advocate Bar
selection process and violated the ings directly to the Audit Committee of Association raised an alarm about
FINRA Code of Arbitration Procedure, FINRA’s Board of Governors. “the apparent corruption of the arbi-
denying investors their contractual Prior to joining Lowenstein in trator selection process.” The group
right to a neutral, computer-generated January, Gerold was chief of the called for the Securities and Exchange
list of potential arbitrators. New Jersey Bureau of Securities Commission to investigate and for
“We take this matter very serious- from 2017 to 2021 and was president Congress to hold hearings on FINRA’s
ly,” Robert Cook, FINRA President and of the North American Securities operation of its arbitration forum.
CEO, said Friday in a statement. “FINRA Administrators Association. PIABA is an association of lawyers who
recognizes the importance of maintain- Edwards’ order centered on a 2017 represent investors in disputes with the
ing trust in the system and is committed FINRA dispute filed by Wells Fargo securities industry.
to ensuring the DRS arbitration forum is Advisors’ client Brian Leggett over more FINRA’s DRS administers the arbi-
operated in a fair and neutral manner,” than $1.1 million in losses that he said he tration forum to assist in the resolu-
Cook continued. “In keeping with that incurred at the hands of a Wells Fargo tion of disputes involving investors,
commitment, FINRA’s Audit Committee broker. In 2019, an arbitration panel securities firms and their registered
has engaged an independent, outside denied Leggett’s claim. In 2021, Leggett employees. “Although securities firms
party to review how the arbitrator selec- asked the Georgia court to vacate the and investment advisers often include
tion process was carried out in this case, Wells Fargo award while Wells Fargo mandatory arbitration clauses in their
and to determine whether any improve- asked the court to confirm it. customer account agreements, FINRA
ments to the process may be warranted. On June 25, Edwards vacated the rules do not require this practice,”
FINRA will make the results of this FINRA arbitration decision, finding that FINRA said. “The arbitration forum
review public.” Wells Fargo and its counsel manipulated operates in accordance with rules that
Christopher Gerold, a partner in the arbitration process. The manipula- have been approved by the SEC, after a
Lowenstein’s Securities Litigation and tion was accomplished with the help of finding that the rules are in the public
Corporate Investigations & Integrity FINRA Dispute Resolution, according interest. The SEC regularly examines Shutterstock
Practice groups, will lead the indepen- to Edwards. DRS’ operations.”

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