An easy way to protect yourself in the case of broker fraud and broker
bankruptcy is to verify that your brokerage firm is a member of the Securities
Investor Protection Corp. (SIPC) and that all the stocks and securities
you purchase are registered with the SEC and the Ohio Division of Securities.
The SIPC is a nonprofit organization funded by member brokers-dealers.
According to its website, the 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.”
If a member brokerage firm goes bust, the SIPC will replace the investments
of most stock investors by up to $500,000 in securities and cash (with
a maximum of $100,000 in cash). Except for under certain circumstances,
commodity futures contracts, fixed annuity contracts, and currency investments
that are not registered with the SEC are ineligible for SIPC protection.
The SIPC does not protect you if you lose money due to the inherent fluctuations
of the stock market, and it will not reimburse you in the event that you
were sold worthless stocks or securities. Only stocks and other securities
that are discovered to be
missing from investor accounts are eligible for replacement by the SIPC. (If you have suffered losses not covered by the SIPC or losses that exceed
the SIPC reimbursement levels, you should contact a securities litigation
attorney to discuss your options for recovery.)
To check whether your brokerage firm is a member of the SIPC, call the
SIPC Membership Department at (202) 371-8300 or search the
SIPC Member Database.