SIPC Securities Investors Protection Corporation

Securities Investor Protection Attorney, Russell L. Forkey, Esq.

Many investors are confused or have questions about what the Securities Investor Protection Corporation is and what it does. Consequently, we have provided this post to provide general information on this subject. Thus, it is not designed to be complete in all material respects. It should not be relied upon as legal or investment advice. If you have any questions relative to this post, you should contact a qualified professional.

What is the Role of SIPC?

SIPC is the first line of defense in the event a brokerage firm fails owing customers cash and securities that are missing from customer accounts. Although not every investor is protected by SIPC, no fewer than 99 percent of persons who are eligible get their investments back from SIPC. From its creation by Congress in 1970 through December 2010, SIPC advanced $1.6 billion in order to make possible the recovery of $109.3 billion in assets for an estimated 739,000 investors.

When a brokerage is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers’ cash, stock and other securities, and other customer property. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever … or wait for years while their assets are tied up in court. However, because not everyone, and not every loss, is protected by SIPC, you are urged to read this whole brochure carefully to learn about the limits of protection.

What Does SIPC Cover and What Does It not Cover?

SIPC is not the FDIC. The Securities Investor Protection Corporation does not offer to investors the same blanket protection that the Federal Deposit Insurance Corporation provides to bank depositors.

How are SIPC and the FDIC different? When a member bank fails, the FDIC insures all depositors at that institution against loss up to a certain dollar limit. The FDIC’s no-questions-asked approach makes sense because the banking world is “risk averse.” Most savers put their money in FDIC-insured bank accounts because they can’t afford to lose their money.

That is precisely the opposite of how investors behave in the stock market, in which rewards are only possible with risk. Most market losses are a normal part of the ups and downs of the risk-oriented world of investing. That is why SIPC does not bail out investors when the value of their stocks, bonds and other investments falls for any reason. Instead, SIPC replaces missing stocks and other securities where it is possible to do so…even when investments have increased in value.

SIPC does not cover individuals who are sold worthless stocks and other securities. SIPC helps individuals whose money, stocks and other securities are stolen by a broker or put at risk when a brokerage fails for other reasons.

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