A recent article in USA Today informed readers about the safety of SIPC, or the Securities Investor Protection Corporation. The author, Matt Krantz, stated, “...there's one risk you should never take when investing: That your broker will take off with your money. It's one thing to buy a stock and see its value fall. That's part of investing. But you should never subject yourself to the risk of your broker or financial adviser stealing your money.”

Trust me, Bernie Madoff is not in the building. But, if you follow Krantz's instructions to learn more about whether BUYandHOLD.com is protected by SIPC, you won't learn much – in fact, you may be alarmed, because BUYandHOLD.com isn't listed. Additionally, you don't learn much about the SIPC in Krantz's article. Please allow me to help you out here and to set your mind at ease.

I'll set your mind at ease first, otherwise you may not pay attention to the SIPC. Here's how to discover your security:

1. Follow Krantz's instructions on how to find BUYandHOLD at SIPC, or simply go to the Member Page.
2. Next, type in Freedom Investments, not BUYandHOLD or BUYandHOLD.com.
3. You'll discover that your portfolio is secure, as BUYandHOLD is a division of Freedom Investments.
4. Now, let's move on to SIPC.

Congress created SIPC in 1970, and since its inception it has advanced $508 million to recover $15.7 billion in assets for 625,000 investors who were caught in investor fraud schemes. From the SIPC site:

SIPC is an important part of the overall system of investor protection in the United States. While a number of federal, self-regulatory and state securities agencies deal with cases of investment fraud, SIPC's focus is both different and narrow: Restoring funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. The Securities Investor Protection Corporation was not chartered by Congress to combat fraud.

SIPC, therefore, is very interested in Bernie Madoff and his violation of his investors' trust. When the federal government became involved with Bernie Madoff, the SIPC could step in and, within certain limits, begin to work to return customers' cash, securities and stocks. According to the SIPC, “no fewer than 99 percent” of eligible people see their money returned from SIPC. Their mission is important, as otherwise investors may lose their money forever or wait for years while assets are tied up in court.

While your savings account is protected by the FDIC (Federal Deposit Insurance Corporation), if you deal with a broker who is not a member of SIPC, your portfolio may not be protected because “insurance” for investment fraud does not exist in the U.S. This is where the SIPC steps in – to protect investors from unscrupulous brokers. But, it's your job to make sure that your broker is an SIPC member.

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. This is one reason to stay away from penny stocks (which you cannot purchase through BUYandHOLD at any rate).

The SIPC holds a reserve of slightly more than one billion dollars, which is one reason why this organization cannot possibly compensate all investment fraud victims with the numbers shown above. However, you can use the SIPC site to file claims and hope for the best if you feel you've become a fraud victim. In many cases, you may discover that there was a simple misunderstanding that can be rectified with the original firm, especially if they're a member of SIPC.

It's important to understand, also, that the SIPC does not cover commodity futures contracts and currency, as well investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933. Additionally, their focus mainly is on failed or failing brokerages that owe customers cash and securities that are missing from customer accounts. Also, the SIPC does not cover the following:

• A general partner, officer, or director of the firm.
  
  
• The beneficial owner of five percent or more of any class of equity security of the firm (other than certain nonconvertible preferred stocks).
  
  
• A limited partner with a participation of five percent or more in the net assets or net profits of the firm.
  
  
• Someone with the power to exercise a controlling influence over the management or policies of the firm.
  
  
• A broker or dealer or bank acting for itself rather than for its own customer or customers.

You can rest easy as a BUYandHOLD customer, as this firm is holding strong and it is 'insured' by the SIPC. Additionally, Freedom Investments is a member of FINRA, or the Financial Industry Regulatory Authority, Inc., the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.

Now that you know that your BUYandHOLD portfolio is doubly covered, you can go back to your research and begin to invest again.

Until Later,
Linda Goin