Securities & Stock Broker Fraud Blog
The Financial Industry Regulatory Authority hired an “independent” law firm to conduct a review of its arbitrator selection procedures after a Judge rebukes FIRNA in an order vacating a Wells Fargo award in a controversial case, according to FINRA.
Finra, whom denied any flaw in its process, hired the law firm of Lowenstein Sandler after a scathing order to vacate a Wells Fargo award. The Judge had said Finra and Wells Fargo’s lawyer appeared to have a secret agreement to strike potential arbitrators from a neutral list and questioned the fairness of the process.
The concerns were reiterated by the Public Investors Advocate Bar Association, which called for “an immediate investigation” by the Securities and Exchange Commission and hearings in Congress, and by Senator Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) in a February 10 letter.
Fulton County Superior Court Judge Belinda E. Edwards in Atlanta had based her ruling vacating the award in part on grounds that the Finra administrators had allowed Wells Fargo and an outside lawyer to “manipulate” the arbitrator selection process, according to her opinion.
“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 in the January 25 ruling.
A Georgia state court judge vacated a 2019 decision in which Wells Fargo successfully beat an investor’s $1.7 million damage claims over investment losses, according to the award.
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. 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, Advisor Hub reported.
“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 in her January 25 ruling.
“The secret agreement undermines the very neutrality of the computerized system,” it added, referencing the “surprising revelation of a corrupted arbitrator appointment system.”
“We have 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,” 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.”
PIABA noted that the ruling comes shortly after the General Accounting Office in December 2021 raised broad questions in a report about the SEC’s supervision of Finra.
According to Edwards’ ruling, Wells’ lawyer, Terry Weiss, a shareholder at Maynard Cooper & Gale in Atlanta, instead sent a letter to Finra administrators “insisting that one of the proposed arbitrators on the list” be removed on the grounds that he “harbored personal bias” against Weiss.
After the plaintiff investors objected, Wells’ lawyer sent another letter in which he disclosed “for the first time” an agreement between Finra and Weiss about “the pool of arbitrators available to his clients in all of his cases,” the ruling noted.
“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,” Weiss wrote to Finra’s dispute resolution director, according to the award and advisor hub
Miller Stern Lawyers, LLC, a Baltimore Securities Fraud Law firm, currently represents investors for claims of fraud, 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.