The Securities Investor Protection Corp. (the SIPC) is considering a much
needed overhaul to its 1970s rules, according to a September 12 Los Angeles
Times article. The revamp comes on the heels of the two biggest financial
calamities to ever hit the brokerage industry: the fall of Lehman Bros.
and the discovery of the
Ponzi scheme run by Bernard Madoff.
Most people are aware of the FDIC (the Federal Deposit Insurance Corp.),
which insures individuals' deposit accounts for up to $250,000 per
insured bank. The SIPC is similar. Funded by member broker-dealers, the
nonprofit organization protects most stock investors for up to $500,000
in securities and cash (with a maximum of $100,000 in cash) in the event
a brokerage firm files bankruptcy or closes due to financial problems.
The SIPC website states its current mission as: "Restoring funds
to investors with assets in the hands of bankrupt and otherwise financially
troubled brokerage firms." The website also stipulates that: "The
Securities Investor Protection Corporation was not chartered by Congress
to combat fraud. "
It is this caveat that is making many investors and securities lawyers
push for an overhaul. After the recent catastrophic financial fallouts
from investment fraud, and with investment scams still on the rise, many
people inside and outside of the industry are calling for a change.
And, according to the Los Angeles Times article, the SIPC is beginning
to listen: "It's time to look at whether retail investors ought
to be treated differently than sophisticated investors such as pensions
and hedge funds," said Stephen P. Harbeck, president of the SIPC.
"It's time to look at the levels of protection and the adequacy
of our funding."
The SIPC is now accepting comments by both securities professionals and
the public. For more information on the debate, visit http://www.sipcmodernization.org/.