In a case that has widespread ramifications for both the Financial Industry Regulatory Authority’s arbitration forum and Wells Fargo, the Fulton County Superior Court in Atlanta has vacated an arbitration award to Wells Fargo Advisors LLC and Wells Fargo Clearing Services LLC, finding that both the broker-dealer and its outside counsel committed fraud and perjury.
In the January 25 ruling, the court also concluded that Wells Fargo’s outside counsel, Terry Weiss, had a secret arrangement with Finra to keep certain people off the list of arbitrators in all of his cases, according to documents he turned over to the arbitration panel and the claimants’ attorney.
The case centers on an arbitration claim brought by two former Wells Fargo investor clients—Brian Leggett and Bryson Holdings LLC—that filed an arbitration claim against Wells Fargo and advisor Jay Wilson Pickett III. Leggett and Bryson Holdings said they sustained losses totaling $1,178,446 in a merger arbitrage strategy between 2015 and 2016 and filed an arbitration claim against both the firm and advisor alleging breach of fiduciary duty and failure to supervise, among other things.
The investors lost their original claim against Wells Fargo in November 2021. But what transpired in the arbitration proceedings has given critics a glimpse into what they fear may be systemic problems with Finra arbitration.
The court found that “factual evidence presented by the investors leads to its factual finding that Wells Fargo and its counsel committed fraud on the arbitration panel by procuring perjured testimony, intentionally misrepresenting the record, and refusing to turn over evidence until after” closing arguments in the arbitration case.
The court also found that the three-person Finra arbitration panel allowed Wells Fargo to block or remove two separate arbitrators in an irregular fashion in a decision that Finra’s director of dispute resolution approved, without responding to investors’ counsel questions and objections.
In its decision to vacate the arbitration, the court cited the investors’ attorney’s claim that “counsel for Wells Fargo for the first time disclosed an agreement between Finra and counsel for Wells Fargo pertaining to the pool of arbitrators available to his clients in all of his cases.”
Wells Fargo's attorney Weiss said during the arbitration that Finra "made clear to me verbally that none of the [former case] arbitrators would have the opportunity to serve on any one of my cases given the horrific circumstances surrounding the underlying case, the SEC investigation, the publicity and the aftermath. It was a most unusual set of circumstances,” according to a transcript from a recording of the arbitration cited by the court.
Judge Belinda Edwards found that "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."
Added Edwards: "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 redline the neutral list makes the list anything but neutral, and calls into question the entire fairness of the arbitral forum.”
According to the court documents, the investors’ attorney asked Finra to resolve the irregular removal of arbitrators from a list of candidates that had been generated by computer, however, “Finra never provided any response to these inquiries.” Instead, Finra's director of dispute resolution said he had struck a potential arbitrator from the list and supplied a new, edited, computer-generated list.