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FINRA faced allegations last year that it reached a "secret agreement" to bar certain arbitrators from hearing a Wall Street lawyer's cases.

An appeals court eventually ruled that the brokerage industry regulator did nothing wrong. Yet the Financial Industry Regulatory Authority is plowing ahead with an overhaul of its system for choosing arbitrators to resolve investor disputes.

The regulator proposed on Dec. 23 various ways to bring "transparency and consistency" to its system for selecting arbitrators, who resolve investor and industry disputes. At the back of it all lies a feud between a Wall Street lawyer representing a Wells Fargo subsidiary and a long-time FINRA arbitrator.

In 2017, Terry Weiss of the Atlanta-based law firm Maynard Cooper & Gale got an arbitrator removed from the pool of candidates who could hear an investor dispute with his client Wells Fargo Advisors. In a letter sent to FINRA that year, Weiss complained that Fred Pinckney —  a securities lawyer and long-time FINRA arbitrator — "has hostile feelings toward me" stemming from an earlier case involving Merrill Lynch. That previous case, originating in 2010, saw Pinckney and two other arbitrators approve a $520,283 award against Weiss's then-client Merrill.

The hearings in the Merrill case were contentious. Weiss was eventually able to have Pinckney and two other arbitrators dismissed over accusations that they had pursued inappropriate lines of questioning.

Pinckney later told a Bloomberg reporter that Weiss "sensed that he was losing the case and repeatedly 'exploded at the panel.'" Pinckney, reached by phone, said he'd be forgotten by now if it weren't for those remarks to Bloomberg.

"All this would have just washed away," Pinckney said. "Instead, I became his public enemy No. 1."

Weiss declined to comment.

Merrill case haunts later Wells case

Weiss's Wells Fargo case involved a lawsuit brought in 2017 by two investors who alleged that a Wells broker had caused them more than $1 million in losses through excessive and overly-risky trades.

The ghost of the earlier Merrill case lingered over the Wells dispute. Weiss wrote to FINRA that it had been "made clear to me verbally" that he would never have to see one of his cases heard by the original arbitrators in the Merrill case again. FINRA eventually removed Pinckney from the pool of arbitration candidates who could oversee the Wells Fargo case. A subsequent arbitration panel later dismissed the investors' complaints and awarded Wells Fargo $51,000 in costs plus fees.

Weiss's 2017 letter caught the attention of the plaintiffs suing Wells. The two investors, Brian Leggett and Bryson Holdings, cited it as evidence that Weiss had an "unwritten agreement" with FINRA prohibiting certain arbitrators from overseeing his cases.

They won a vacation of the arbitration panel's award on Jan. 25, 2022 after appealing the decision to Fulton County Superior Court in Atlanta. In siding with the two investors, Georgia Judge Belinda Edwards found that "Permitting one lawyer to secretly redline the neutral [arbitrator] list makes the list anything but neutral, and calls into question the entire fairness of the arbitral forum." Her ruling was overturned by the Georgia Court of Appeals on Aug. 3.

Hired by FINRA to review that lengthy history, the New York-law firm Lowenstein Sandler found that neither Weiss nor FINRA did anything amiss in having Pinckney disqualified from the Wells Fargo case. Still, in a 37-page report , the firm recommended that FINRA take steps to "increase transparency and ensure neutrality" in its arbitration proceedings.

Thomas Potter, a partner at Burr & Forman who has also represented Wells Fargo in disputes before FINRA arbitration panels, said there's nothing "earth-shattering" in FINRA's proposed reforms.

"But anything that helps build trust in the system, that provides a little more transparency, is good," Potter said.

One of FINRA's proposed changes, now awaiting approval from the Securities and Exchange Commission, would clarify that arbitrators from computer-generated lists of potential panel candidates can be disqualified at the request of both FINRA directors or the parties to a dispute. FINRA rules now contain prohibitions for arbitrators who are related to an involved party or have worked for a company in a pending case.

FINRA is also proposing to require its directors to put in writing their reasons for striking any potential arbitrators from candidate pools. Separately, it's calling for hearings in cases involving $50,000 or less to be heard by videoconference unless the parties request they be done over the telephone.

Arbitration is often billed as a cheaper and faster way for investors to resolve disputes than going to court. Arbitrators' decisions are generally considered to be final and binding. FINRA arbitration cases involving more than $100,000 go before three-person panels for arbitration. Those involving less usually go before a single arbitrator. More than 2,400 cases were submitted to FINRA through November last year, according to the regulator's statistics .

FINRA has more than 7,900 arbitrators in its pool of candidates who could be called on to hear any given case. They are considered independent contractors and are generally people with experience in the financial industry, many of them lawyers, accountants or securities professionals.

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