How Investors Can Protect Themselves from Broker Fraud and Broker Bankruptcy

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.


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