Make us your home page

Column: Protections exist for brokerage customers

CNBC money man Jim Cramer has taken a lot of flak for his pronouncement last month that "Bear

Stearns is fine!" just a few days before the company was forced to merge with JPMorgan Chase & Co. to avoid collapse.

You can see Cramer's screaming proclamation that "Bear Stearns is not in trouble!" by searching for the phrase "Bear Stearns is fine" on YouTube.

Quite obviously, neither Bear Stearns nor its shareholders were fine. However, Cramer wasn't really offbase when he advised Bear Stearns' brokerage customers not to pull out their money. Even if JPMorgan hadn't ridden to the rescue with the backing of the Federal Reserve, the brokerage customers probably would have been fine.

Customers have a wide range of protections when brokerages go bankrupt, even if it turns out securities are missing from their accounts. However, there are limitations investors need to know about. With questions swirling about the value of assets that brokerages carry on their books, this is a good time to review the basics.

First and foremost: The assets in your account, minus any money you owe the brokerage, belong to you, not the brokerage. The Securities and Exchange Commission requires a brokerage to keep customer assets separate from its assets. That means customer assets are never supposed to be used to pay the company's creditors and usually they aren't.

But what happens if the brokerage broke the rules and customer assets are missing?

That's when the Securities Investor Protection Corp. steps up to the plate. It becomes the trustee or works with a court-appointed trustee to liquidate the failed brokerage and recover customer money.

First investors get back the securities registered in their names or are being registered in their names. Then investors' claims for missing securities take priority over those of other creditors in the liquidation process. If there isn't enough to pay customers what they are owed, SIPC will pay up to $500,000 of customer claims for missing investments, including a maximum of $100,000 for missing cash.

Many brokerages, including Bear Stearns, have bought extra insurance from private carriers and offer customers millions of dollars of protection.

A private corporation created by Congress in 1970, SIPC says it has advanced more than $500-million as part of the recovery of $15.7-billion in assets for customers of failed brokerages.

But SIPC coverage has some major limitations. It does not cover losses in market value, even when those losses were because of fraud or the result of the inability to sell a stock during liquidation. If the brokerage being liquidated stole stock from your account, that's an SIPC-covered loss. But if it sold you a stock that became worthless, that's not covered.

Also, SIPC coverage does not extend to unregistered investments, including investment contracts, limited partnerships, fixed annuity contracts, currencies and interests in gold, silver or other commodity futures contracts or options. Owners and partners in the failed brokerage are not eligible for SIPC coverage.

If the brokerage being liquidated had good records, customer accounts may be transferred to another brokerage within a few weeks. But when records were poor or fraud was involved, the process can take months. Customers who don't want to stay with the new brokerage can have their accounts transferred elsewhere.

Fortunately, brokerage liquidations are rare. Last month's announcement of the liquidation of a Louisiana broker was the first initiated by the SIPC in 14 months.

Be sure to

have SIPC


• Look for the words

"Member SIPC" when

dealing with a brokerage.

• Make checks payable to the SIPC member company, not to other companies or

the broker.

• Keep copies of trade

confirmations and of

recent statements.

• Check statements

to be sure

nothing is amiss.

• Call if you fail to

receive a statement.

• File your claim by

the deadline if your brokerage fails.

Column: Protections exist for brokerage customers 04/05/08 [Last modified: Saturday, April 5, 2008 5:33am]
Photo reprints | Article reprints

© 2017 Tampa Bay Times


Join the discussion: Click to view comments, add yours

  1. Carrollwood fitness center employs scientific protocol to help clients


    In 2005, Al Roach and Virginia Phillips, husband and wife, opened 20 Minutes to Fitness in Lakewood Ranch, and last month they opened the doors to their new location in Carrollwood.

    Preston Fisher, a personal fitness coach at 20 Minutes To Fitness, stands with an iPad while general manager/owner Angela Begin conducts an equipment demonstration. The iPad is used to track each client's information and progress. I also included one shot of just the equipment. The center recently opened in Carrollwood. Photo by Danielle Hauser.
  2. Olive Tree branches out to Wesley Chapel


    WESLEY CHAPEL — When it came time to open a second location of The Olive Tree, owners John and Donna Woelfel, decided that Wesley Chapel was the perfect place.

    The Olive Tree expands its offerings of "ultra premium?€ extra virgin olive oils (EVOO) to a second location in Wesley Chapel. Photo by Danielle Hauser.
  3. Massachusetts firm buys Tampa's Element apartment tower

    Real Estate

    TAMPA — Downtown Tampa's Element apartment tower sold this week to a Massachusetts-based real estate investment company that plans to upgrade the skyscraper's amenities and operate it long-term as a rental community.

    The Element apartment high-rise at 808 N Franklin St. in downtown Tampa has been sold to a Northland Investment Corp., a Massachusetts-based real estate investment company. JIM DAMASKE  |  Times
  4. New York town approves Legoland proposal


    GOSHEN, N.Y. — New York is one step closer to a Lego dreamland. Goshen, a small town about fifty miles northwest of the Big Apple, has approved the site plan for a $500 million Legoland amusement park.

    A small New York town, Goshen approved the site plan for a $500 million Legoland amusement park. Legoland Florida is in Winter Haven. [Times file  photo]
  5. Jordan Park to get $20 million makeover and new senior housing

    Real Estate


    Times Staff Writer

    ST. PETERSBURG —The St. Petersburg Housing Authority, which bought back the troubled Jordan Park public housing complex this year, plans to spend about $20 million to improve the 237-unit property and construct a new three-story building for …

    Jordan Park, the historic public housing complex, is back in the hands of the St. Petersburg Housing Authority. The agency is working to improve the 237-unit complex. But the latest plan to build a new three-story building for seniors will mean 31 families have to find new homes. [LARA CERRI   |   Tampa Bay Times]