SIPC protection against fraud.

Discussion in 'Retail Brokers' started by stock777, Jan 21, 2006.

  1. I know SIPC covers failure of a firm, but what about outright fraud, where a covered entity simple took the money and ran.

    I would assume SIPC would cover up to allowable limits, but can't find a spcific citing on this.

    Tried calling them the other day, but the number was busy ;-).

    Anyone know the facts here?
  2. Quote from SIPC site:
    "...When a brokerage firm fails owing customers cash and securities that are missing from customer accounts, SIPC usually asks a federal court to appoint a trustee..."

    I read it as fraud is a kind of failure. If the broker is member SIPC and cash and securities are missing from your account, SIPC will help...
  3. range


    "Insurance" for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually.

    With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud.
  4. I believe the original question was about a broker failure (took the money and ran). In this case there will be bankrupcy of the firm and SIPC will get involved.

    This is different then investment fraud that has to do with illegal investment activities, such as insider trading, bogus claims for insider information and front running using wrong data etc. More on that on the SEC site
  5. Correct, not talking about a bad stock trade, poor advice, or head lice.

    Talking about the cfo takes all the money and runs.