Investors who sue their brokers must accept an arbitration process run by officials appointed in an inscrutable manner. Why help is needed.

Barron's (January 31, 2015) -- Here’s an outrage crying out for congressional redress: One class of Americans is routinely denied due process under the law. Their legal complaints are heard by arguably  biased panels selected in a secretive process. Who are these unfortunate dogs? They are investors, like us!

Whenever we open a brokerage account we sign away our right to sue the firm for any reason. Instead, we sheepishly accede to settling our disputes with broker-dealers and their employees in an arbitration and mediation system stacked against us by Wall Street. Is there a lawyerly Don Quixote in the house? If so, please saddle up Rocinante. This contractual condition has never been successfully challenged.

The arbitrators and mediators are appointed in inscrutable fashion by the Financial Industry Regulatory Authority, or Finra. This is a secretive, combative, industry-controlled, self-regulatory organization that oversees about 4,000 securities firms with approximately 638,000 brokers. Finra is accountable only to the Securities and Exchange Commission, which does not issue exam reports, even redacted ones. History’s report card, however, gives Finra a D-minus. Finra failed to properly regulate a host of firms at the center of the financial meltdown, including Bear Stearns and Lehman Brothers.

LEGAL AND CONSUMER GROUPS are trying to persuade Finra to open up the arbitrator-selection process to scrutiny. Their goal is to collect enough data for credible analysis, which in turn would lead to recommendations for reform. Originally, the groups filed a Freedom of Information Act (FOIA) request with the SEC to force the release of some 65 boxes of data.

They were turned down flat by the SEC–a decision upheld last November by the U.S. Court of Appeals for the District of Columbia. The court ruled that two bipartisan amendments to the Exchange Act in 2010 requested by the SEC provided Finra with blanket immunity from the FOIA law. Those amendments were intended to fix a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that would have made it easier to get information from the SEC and Finra.

SEC Chairman Mary Schapiro, a former Finra CEO, said that provision stymied her agency’s regulatory function because exchanges and brokerages were reluctant to turn over proprietary information that might later be passed to the public. Former Massachusetts Rep. Barney Frank, the co-sponsor of Dodd-Frank, urged Congress to pass the restrictive amendments, which said that any SEC-regulated entity was a “financial institution” exempt from FOIA.

Critics claim Finra’s arbitration pool is biased. A 2014 study by the Public Investors Arbitration Bar Association (Piaba) of public Finra data found that 80% of arbitrators are male and the average age is 69. Another complaint is that the same names keep showing up, suggesting that the pool of candidates is small. Finra says the selection process is random, but the public can’t know this for certain. “I’ve seen potential candidates who have never given a claimant’s award in any contested case,” says Hugh Berkson, a partner at Hermann, Cahn & Schneider in Cleveland, and president-elect of Piaba. “Statistically, that is impossible—absent bias.”

Finra can’t even be sued for incompetence because it is a federally protected regulator. Absent help from Congress, investors sorely need a Don Quixote.