To review, Fulton County Superior Court Judge Belinda E. Edwards in Leggett v. Wells Fargo Clearing Services, LLC, No. 2019CV328949 (Ga. Super Jan. 25, 2022), found that the potential arbitrator list preparation process had been compromised. This prompted: 1) subsequent calls by PIABA for Congressional and SEC investigations; 2) a denial from Wells and a vow to appeal; 3) a February 9 letter to FINRA from Sen. Elizabeth Warren (D-MA) and Rep. Katie Porter (D-CA) demanding answers by February 23; 4) a February 18 Press Release from FINRA announcing that the Authority had retained the Lowenstein Sandler law firm to conduct an independent review; and 5) a February 24 appeal by Wells (according to news reports in FA Magazine and ThinkAdvisor). The latest news is that FINRA replied to Sen. Warren and Rep. Porter in a February 21 letter from CEO and President Robert W. Cook, and the legislators responded in a March 7 letter announced in a Press Release.
FINRA Responds to the Legislators
In their February 9 letter, Sen. Warren and Rep. Porter said that FINRA must address their concerns by answering a series of questions by February 23. FINRA replied to the legislators in a February 21 letter from CEO and President Robert W. Cook. After reviewing at length the operation of the Neutral List Selection System, arbitrator disclosure requirements, how FINRA Dispute Resolution Services (“DRS”) handles arbitrator challenges, along with specifics of how it handled the arbitrator challenge in the Leggett arbitration itself, and the retention of outside counsel to conduct an investigation, Mr. Cook states that thus far no irregularities have been discovered. He also announces some immediate changes in policy and procedure: “[W]hile this independent review is ongoing, DRS is implementing enhanced oversight of its decisions in response to challenges by parties seeking removal of arbitrators. In particular, all such decisions will be escalated to the DRS Director for final review and determination. The DRS Director will also provide a monthly report to the FINRA Chief Legal Officer of all such decisions. FINRA also has updated its website to provide additional clarity and transparency related to the arbitrator selection process” (footnote omitted).
The Legislators Respond to the Response
Sen. Warren and Rep. Porter are not pleased with FINRA’s response and have additional questions. Their letter states: “[W]e are disappointed that you failed to answer key questions about the specific way that arbitrators were chosen in the Wells Fargo vs. Leggett case, the actions of Wells Fargo and its representatives, and communications between Wells Fargo officials and FINRA officials about the arbitration process. Instead, you only provided us with an anodyne description of the process from FINRA’s Dispute Resolution Services….” Because FINRA was not, in their view, responsive to the original list of questions, the latest Warren-Porter letter propounds a new list (ed: repeated essentially verbatim):
(1) A description of the full investigative processes and procedures that will be used by the outside law firm investigating this matter.
(2) The name of the firm conducting the investigation.
(3) Will FINRA make the full report of this firm public, including all relevant documents, interviews, or other information?
(4) Will FINRA conduct a new arbitration process in the Wells Fargo vs. Leggett case if the independent investigation reveals concerns about DRS’s compliance with applicable rules, policies, and procedures for arbitrator selection in this case?
(5) Will the review encompass any cases besides the Wells Fargo vs. Leggett case? Will FINRA consider conducting new processes in these cases based on the finding of the independent investigation?
(6) What specific enhanced oversight processes will DRS implement? What will be the timeline for implementing these processes?
A response was requested by March 22. Seeing nothing new after that date on the FINRA or Congressional Websites or social media, we asked for a status update from FINRA, which referred us to Sen. Warren and Rep. Porter. Inquiries to the legislators remain unanswered as of April 3.”
(ed: *Seems to us some of the answers were in Mr. Cook’s February 24 response. **We imagine DRS Director of Arbitration Rick Berry will be really busy dealing with every arbitrator challenge! We suggest a better approach would have been to allow an aggrieved party to escalate what they believe was an erroneous staff decision. Also, Rule 12100(m) authorizes the Director to delegate most decisions. This substantial change in policy might require a rule filing. ***As we’ve said early and often, this is by no means the end of it. It’s just the latest chapter in what is sure to be a lengthy process. ****Full disclosure: we had to look up the definition of “anodyne.” According to Websters, it means: “not likely to offend or arouse tensions” or “serving to alleviate pain.”)
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