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Friday, July 12, 2024 | Back issues
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Bank Fraud Victims Balk at FINRA Arbitration

(CN) - Relatives of elderly customers allegedly robbed by a Wachovia broker claim in court that arbitration proceedings overseen by Financial Industry Regulatory Authority are biased against them, and ask that their claims be heard in court.

Ann Morton Young Habliston and Seymour Young sued the authority's dispute resolution arm in federal court, claiming lax oversight by the independent, not-for-profit organization was as much to blame for their troubles as the alleged malfeasants.

According to the Youngs, Wachovia Securities, now Wells Fargo Advisors, allowed criminal enterprises to steal $420 million from bank accounts, and disabled certain security measures in order to profit from laundering up to $424 billion for Mexican drug cartels.

Of particular concern to the Youngs, it also allegedly allowed one of its brokers to steal over $1 million from client accounts, and solicit unsuitable personal loans from elderly clients which he converted to his personal benefit, according to the complaint.

The bank's fraud detection systems were found to be deficient in 27 regulatory enforcement actions, the Youngs claim.

"Wachovia Securities knew deficiencies allowed at least 19 brokers and a bank employee to steal millions from Wachovia/Wells Fargo customer accounts," and encouraged brokers to generate higher fees by approving "unsuitable activity in elderly customer accounts," the complaint states.

The Financial Regulatory Authority, an entity authorized by Congress, but not part of the federal government, is responsible for protecting the public from its members' misconduct.

But despite knowing of Wachovia's deficiencies, and criminal activity by its broker, the agency did not bring disciplinary actions against either the bank or the broker. The broker was not criminally charged until state regulators and the U.S. Secret Service investigated the matter, the Youngs say.

"FINRA and FINRA DR [Dispute Resolution] have allowed Wells Fargo Advisers to conceal and withhold account records and other documents without sanction, and have not taken any disciplinary action against Wells Fargo Advisers or the broker for criminal theft of funds and deceptive trading practices with elderly and infirm customers," plaintiffs say.

They claim the authority's arbitration process shields banks that have engaged in a pattern of systematic misconduct, and denies customers their due process rights.

In their own case, plaintiffs say FINRA appointed an arbitrator who is biased in favor of the financial industry. The arbitrator belatedly revealed that her husband is an expert currently defending a securities dealer on claims related to the sale of a Wachovia security. His testimony will assert the adequacy of the bank's internal controls.

"This new disclosure demonstrates a culture of prejudice and industry bias that exists within FINRA arbitrations that denies customers of their right to an impartial hearing," the Youngs say. "It is incredulous to believe FINRA DR found no cause to remove this chair."

They asked the court to intervene, asserting that FINRA is "not competent to administer plaintiff's arbitration claims," and that "the SEC has not met its statutory duties of oversight regarding the fairness of FINRA arbitration. This lack of oversight voids the Supreme Court's rationale and findings to enforce pre-dispute binding arbitration provisions."

The Youngs say they will incur $9 million in damages if forced to proceed with the authority's arbitration process.

They are represented by Ford Ladd in Alexandria, Virginia.

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