In a bombshell decision, Atlanta’s Fulton County Superior Court has vacated an arbitration award to Wells Fargo Advisors LLC and Wells Fargo Clearing Services LLC based on findings that the company and its outside counsel may have committed both perjury and fraud. The decision, made by Judge Belinda Edwards, was an excoriating description of corruption in a process intended to be as fair as possible.
Judge Edwards’ ruling found that Wells Fargo and Pickett “manipulated” FINRA’s neutral computer-generated arbiter process through an unwritten agreement between Picket and FINRA officials.
According to the ruling, “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.”
The Public Investors Advocate Bar Association (PIABA) has issued a statement calling for both the SEC and Congress to take action, requesting “an immediate investigation by the SEC and Congressional hearings as to FINRA’S operation of its arbitration forum.
Unnamed FINRA officials have denied the findings, stating that all assertions regarding secret agreements or arbitrator redlining are entirely false. However, documents submitted to the court by Wells Fargo and Weiss apparently prove otherwise, as indicated by Judge Edwards’ ruling.
The original arbitration claim was brought by Brian Leggett and Bryson Holdings LLC, two former Wells Fargo investor clients. Their claim included an alleged breach of fiduciary duty by advisor Jay Wilson Pickett III and failure to supervise by his member firm Wells Fargo.
Leggett and Bryson Holdings stated that they sustained total losses of $1,178,446 as a result of a faulty merger arbitrage strategy recommended by Pickett and permitted by Wells Fargo throughout 2015 and 2016. However, Wells Fargo and its outside counsel Terry Weiss fought back, and Leggett and Bryson Holdings’ claim was denied in November 2021.
Leggett and Bryson Holdings appealed that decision in court. As of January 25th, the court ruled in their favor. The resulting decision has put FINRA’s supposedly neutral arbitration process under the microscope.
Other findings in Judge Edwards’ ruling included:
- The arbitrators refused to hear “relevant, non-cumulative evidence” from a third-party witness and “unfairly limiting the cross examination of a Wells Fargo expert witness.”
- The arbitrators “ignored the contractual framework the parties had agreed to and imposed liability beyond that which was permitted or contemplated” and “improperly imposed “session fees” (the fees paid to the Arbitrators) against the Investors that were inconsistent with the FINRA Code of Arbitration Procedure.”
- Wells Fargo and Weiss committed fraud by “procuring perjured testimony, intentionally misrepresenting the record, and refusing to turn over a key document to investors until after the close of evidence.”
Wells Fargo isn’t new to scandals like these; the company’s reputation continues to be tainted by the fake-account scandal from 2016. However, FINRA’s involvement in this case demonstrates that the supposedly neutral agency may not be performing its duties fairly across the board.
This decision puts the future of FINRA arbitration up for debate. Critics such as Senator Elizabeth Warren may now have grounds to dig deeper into the agency’s arbitration processes. While the situation continues to develop, investors should keep a close eye on FINRA’s responses and consider the fairness of their own arbitration agreements.
Sources (some may be behind a pay wall):