The saga of Wells Fargo’s “secret deal” with an Finra arbitrator has taken another turn, with investors filing a brief supporting a judge’s January decision to overturn a “fraudulent” arbitration award in the firm’s favor.
The judgment by a state Superior Court judge in Georgia vacated an August 2019 award from an Atlanta-based arbitration panel that denied investors Brian Leggett and Bryson Holdings their claim for more than $1.1 million in losses sustained due an advisor’s failed arbitrage strategy. The investors were ordered instead by the arbitration panel to pay Wells Fargo $83,600 in costs and fees. The award also expunged the investors’ complaint from Finra BrokerCheck records of the two former advisors.
While judges rarely throw out arbitration cases, which must be certified in local court, judge Belinda Edwards questioned “the entire fairness” of Finra’s arbitration process, said the panel allowed perjured testimony and cited a “secret agreement” between Finra and Wells Fargo regarding arbitrator selection.
Wells Fargo Advisors filed an appeal in April 4 in the Georgia Court of Appeals, arguing that the trial court “vacated the award notwithstanding that the factual findings in its order are false and wholly unsupported by the record. If this court does not reverse, the trial court will have effectively deprived WFA of the benefit of the written contractual bargain that it had struck with Leggett.”
Finra has denied the ruling's assertion that it rigged the arbitration process, but the regulator did order a review of its arbitration system after the court decision.
Investors’ new appellate brief argues that the court’s decision is based on factual evidence showing fraud and that “judicial review of arbitration awards is essential to ensuring that parties waiving their constitutional right to a jury trial are afforded a fair and neutral process.”
Michael Edmiston, an attorney with Jonathan Evans & Associates, told Financial Advisor magazine that the investors’ arguments “are exactly that the trial court was correct in both findings of fact and conclusions of law.
“Investors have no choice but to trust the system they’re forced into and what happens in this arbitration case shatters that trust,” added Edmiston, who also serves as president of the Public Investor Advocate Bar Association (PIABA).
Sen. Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) asked Finra after the judge’s ruling how they planned to fix the problems cited in the decision.
They told Finra in a letter that the court decision raised "serious questions about your assertions that the Finra arbitration process is ‘neutral, efficient and fair,’ and about whether Wells Fargo has once again sought to undermine consumer protection rules."
Edmiston, a former Finra staff attorney, said he believes that Finra has taken a step in the right direction by ordering an independent review of the system.
“I think what we’ll see, depending on what the review finds, is improvements in the arbitrator selection process,” he added. While arbitrator panels are supposed to be generated randomly by computer, PIABA has found that the arbitrators who render favorable awards most often are chosen again and again by lawyers representing the industry and advisors.