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Just as we were finalizing this Alert, we learned that a Georgia Trial Court has just vacated a FINRA Award based on multiple Federal Arbitration Act (“FAA”) violations, prompting PIABA to call for Congressional and SEC investigations. We will cover this story in detail in the next issue, but we wanted to pass along now some basic information.

We covered in SAA 2019-30 (Aug. 7) the underlying Award in Leggett v. Wells Fargo Clearing Services, LLC, FINRA ID No. 17-01077 (Atlanta, GA, Aug. 1, 2019). We said then that: “The Arbitrators rule for WF, holding [investor] Leggett liable for $51,000 in costs and all forum fees; they also award expungement relief ….” The investors moved to vacate in October 2019, asserting several acts of arbitrator and FINRA arbitration forum misconduct. One key assertion was that the integrity of the proposed arbitrator list compilation process had been compromised. Fulton County Superior Court Judge Belinda E. Edwards vacates the Award in Leggett v. Wells Fargo Clearing Services, LLC, No. 2019CV328949 (Ga. Super Jan. 25, 2022). The Court weighed in on interference with the Neutral List Selection System with some scathing verbiage:

“The Court’s factual review of the record evidence leads to its finding that Wells Fargo and its counsel manipulated the FINRA arbitrator selection process in violation of the FINRA Code of  Arbitration Procedure, denying the Investors’ their contractual right to a neutral, computer-generated list of potential arbitrators. 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. 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.”

PIABA: Send in the Investigators

In a somewhat rare occurrence, PIABA issued a February 2 Statement from President Mike Edmiston commenting on the court decision and calling for Congress and the SEC to investigate FINRA’s operation of its arbitration forum: “On January 25, 2022, a Georgia state court vacated a FINRA arbitration award in favor of Wells Fargo finding that Wells Fargo and its counsel manipulated the arbitration process. The manipulation was accomplished with the help of FINRA Dispute Resolution. []Judge Belinda E. Edwards excoriated the conduct of FINRA Dispute Resolution in managing the arbitration selection process and the arbitration panel for permitting a variety of misconduct by Wells Fargo Clearing Services and its counsel.[]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. []According to the Order, Wells Fargo and its attorney had an unwritten agreement with FINRA that FINRA would remove certain arbitrators from any list presented to this particular counsel. Judge Edwards found, ‘[p]ermitting 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.’”

FINRA Responds

A FINRA spokesperson offered this response: “There has never been any agreement between FINRA Dispute Resolution Services and attorney Terry Weiss regarding appointment of arbitrators. Any assertions to that effect are false.[]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. In fact, in the case at hand, Arbitrator Pinckney, an arbitrator who served on the Postell case, was on the list sent to the parties.[]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.”

(ed: *Ouch! More details next week. **We wonder whether the Court sought input from FINRA? ***Regarding proposed arbitrator lists compiled by the Neutral List Selection System, we’ve always been advocates of: “If you don’t like ‘em, strike ‘em.”)

This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

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