Wells Fargo said it intends to appeal the decision. “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 and we intend to appeal this decision,” spokeswoman Jackie Knolhoff told Financial Advisor.
Finra denied the court’s findings. “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,” Finra spokeswoman Michelle Ong said.
Ong said Finra has 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, an arbitrator who was involved with the previous arbitration Weiss claimed Finra avoided using arbitrators from in his cases, was on the list sent to the parties, she 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,” Ong added.
Michael Edmiston, president of the Public Investors Advocate Bar Association (PIABA), said the attorneys trade group planned to immediately call on Congress and the Securities and Exchange Commission to investigate the findings in the court decision.
“The problem here is you don’t know the scope of how badly the system is stacked against investors,” said Edmiston, who is also a former senior staff attorney at Finra. “You don’t know what other secret agreements firms have with Finra. It is just this one attorney or multiple attorneys with numerous firms who have created this secret process. You literally just do not know.”
He noted that in 2021 the Finra arbitration wins by claimants dropped significantly. “Claimants only won 31% of cases that went to award. Normally the number hovers around roughly 40% to 45%.” He couldn’t help but think, he said, that the scales had been tipped toward the financial services companies because arbitrators favoring investors in the past were being excluded. “No one knows the scope of the secret deals,” Edmiston said.
The arbitration panel also allowed Wells Fargo and its attorney to “intentionally withhold evidence,” block witnesses and allow the advisor to commit perjury by changing testimony after a medical delay, the court found. Several “audio tapes, which were not available to the investors until after the close of the hearing, confirm that Wells Fargo’s key witness used the delay caused by the medical emergency to materially change his testimony and offer perjured testimony in direct contravention of the earlier testimony.”
Also troubling, according to the court, is the fact that Finra arbitrators charged the investors $51,000 for Wells Fargo attorney fees and charged inflated arbitration fees of $32,000. The Wells Fargo arbitration agreement with investors does not mention that the losing party will pay attorney fees, the court said.
A Wells Fargo attorney allowed one of the company’s regional brokerage managers from Atlanta to rattle off costs, which arbitrators then used to award fees to Wells Fargo.
“Not only were these numbers not proven, they were never entered into evidence,” the court found. “Even if the arbitrators had the authority to assess fees and/or costs against Leggett, here there was no valid evidence to support this number.”
Arbitrators “improperly and without legal justification imposed costs and fees on the investors in violation of the contractual framework that bound the parties. The court finds that each of these violations provides separate, independent grounds to vacate the award in its entirety. Accordingly, the panel’s award is vacated.”