Ex-Wells Broker Fails to Overturn 475,000 Arbitration Loss

28 Dec    Investing News

A federal judge in Florida denied a former Wells Fargo Advisors’ effort to avoid repaying the bank more than $475,000 despite his arguments that arbitrators failed to let him present evidence of breach of his employment contract and to delay hearings because of an impending hurricane.

Joseph Shimko, who left Well’s bank-branch-based brokerage group in 2017 to join Merrill Lynch, was ordered in September to pay $535,000 of his promissory note balances and attorneys’ fees to Wells. 

He responded with a petition to vacate the order, arguing that the three Finra arbitrators in Boca Raton improperly refused to postpone scheduled hearings in September despite the imminence of Hurricane Dorian. 

He also asserted that arbitrators would not allow him to present other brokers as witnesses to back his claim that Wells Fargo breached his employment contract by directing customers from his bank-branch brokerage team to its “investment and fiduciary services group” and by testifying to the effect that Wells’ banking scandals were having on financial advisors’ business. 

U.S. District Judge Robin Rosenberg in the southern district of Florida ruled that Shimko failed to prove he was denied a fair hearing because of excluded testimony, according to her dismissal order posted on Friday. She also shrugged off his August 30 request for a hurricane delay by noting that arbitrators denied his request on September 5 after the threat of the storm had passed.

In what may be her most penetrating analysis regarding Financial Industry Regulatory Authority arbitration hearings, the judge ruled that Shimko’s claim that one of the arbitrators was misclassified as a representative of the public rather than of the securities industry was insufficient grounds for vacating the award.

Brokers’ attempts to vacate arbitration awards against them are often based on improper classification arguments. However, federal courts give strong deference to arbitration decisions, overturning them in limited instances such as arbitrator conflict-of-interest or misconduct, or where awards demonstrate a “manifest disregard of the law” or exceed their powers.

“Plaintiff has pointed to no case holding that a misclassified arbitrator exceeds his powers and has pointed to no case holding that the misclassification of an arbitrator justifies vacating an arbitration award,” Judge Rosenberg wrote. She also noted that all three arbitrators ruled in favor of Wells Fargo, meaning that the two unchallenged arbitrators’ decisions were sufficient under Finra rules to make the award.

Steven Silverthorne, a former Morgan Stanley broker in New Jersey, filed a petition on December 16 in New York to vacate an arbitration decision ordering him to repay his promissory note balances of almost $263,000 plus interest and attorneys’ fees on the grounds that the sole arbitrator in the case was improperly classified as “public”  because he was the former head of arbitration and chief hearing officer at the New York Stock Exchange. Silverthorne, now a broker at Avantax (the former H.D. Vest), declined to discuss his case, as did his lawyer Manny Alicandro.

A spokeswoman at Morgan Stanley, which received a summons to answer Silverthorne’s filing on Dec. 26, did not return a request for comment.

Thomas Lewis, a New Jersey lawyer who represented Wells in the Shimko arbitration and vacature arguments, said Judge Rosenberg “considered all arguments raised by Shimko” and rejected each of them. He declined to discuss her specific comments on arbitrator classifications.

The judge denied Wells’s attempt to collect attorneys’ fees of $14,153 in the vacature proceeding, writing that it submitted insufficient evidence to determine the reasonableness of its lawyers’ billing for 70 hours of work.

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