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Answer:
Dear
BuyandHolder,
BUYandHOLD,
our full-service brokerage firm, Freedom Investments
and most brokerage firms are members of the Securities
Investor Protection Corporation, commonly known
as SIPC.
SIPC,
a non-profit, non government membership group, is
the insurance body for the brokerage industry. Formed
in 1970, it is funded by member broker/dealers.
What
SIPC covers...
SIPC
provides protection to clients of brokerage firms,
such as yourself, but only under three very specific
circumstances --
(1)
If a brokerage firm fails -- which answers your question.
(2)
If your securities are stolen by a broker.
(3)
If unauthorized trading has taken place in your account.
If
a brokerage firm declares bankruptcy...
When
a firm fails, the cash and securities held by customers
are protected -- but only if they are already registered
or are in the process of being registered.
The
amount that is protected under any one of the above
three scenarios is $500,000 per customer. That includes
$100,00 for cash within an investor's account.
What
SIPC does not cover...
SIPC
is not as all-inclusive as FDIC insurance, which protects
bank deposits. So please review this list carefully,
in terms of your own investments and holdings.
-
SIPC does not bail you out if your stocks, bonds
or other securities fall in value. In other words,
if a stock you purchase at $15 per share, drops
to $5, you're stuck and must absorb the loss.
- If
a publicly traded company declares bankruptcy, such
as Enron did, SIPC has no role in that scenario.
- SIPC
does not protect you against fraud or deceptive
selling practices. If you are sold worthless stocks
by a fast-talking con artist, you're out of luck.
- There
are two types investments that are ineligible
for SIPC protection -- commodity futures contracts
and currency.
When
SIPC steps in...
When
a SIPC-member brokerage firm fails, SIPC typically
asks a federal court to appoint a trustee to liquidate
the firm and protect its customers. Usually arrangements
are made to have some or all customer accounts transferred
to another brokerage firm. Customers are notified
promptly and then have the option of staying at the
new firm or moving to another brokerage firm of their
own choosing.
$Tip:
Many brokerage firms carry additional commercial insurance
on top of their SIPC coverage. Here at BUYandHOLD,
we do not offer excess SIPC insurance.
Checking
up on SIPC...
Any
firm that has SIPC insurance will say so in its ads,
on its website, in its literature and on its various
applications and forms.
If
you wonder whether or not a particular firm is a member
of SIPC, call the membership department at: 202-371-8300
or check on the web at: www.sipc.org.
You'll
also find detailed information about SIPC and the
transfer of accounts process on the website.
Protecting
yourself...
If
you are ever a customer of a firm that fails, you
must immediately read the SIPC's step-by-step guide
for submitting the proper claim forms.
And
you must file this paperwork before the stated deadline,
which may be as short as 30 to 60 days. If you fail
to do so, you could lose your claim.
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