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Answer:
BUYandHOLD,
and their affiliated full-service brokerage firm,
Freedom Investments, 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.
Virtually all broker/dealers registered with the SEC
are SIPC members.
What
SIPC covers...
SIPC
provides protection to clients of brokerage firms,
but only under specific circumstances -- (1)
if a brokerage firm fails and (2) if your securities
are stolen by a broker.
Note:
When a firm fails, the cash and securities held by
a customer are protected provided 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...
A
word of caution. SIPC is not as all-inclusive
as FDIC insurance, which protects bank deposits. 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 $12 per share, drops to $2, you're
stuck and must absorb the loss. And if a publicly
traded company declares bankruptcy, such as Enron
did, SIPC has no role in that scenario.
Nor
does SIPC protect one against fraud or deceptive selling
practices. If you are sold worthless stocks and other
securities by a fast-talking con artist, you're on
your own.
And,
there are some more esoteric investments that are
ineligible for SIPC protection. The two most
common -- 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.
The
most recent such case took place in September in St.
Louis, MO. It involved moving 3,200 accounts worth
$106 million from the failed Clearing Services of
America to Saxony Securities.
$Tip:
Many brokerage firms carry additional commercial
insurance on top of their SIPC coverage.
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.
Finally,
if you are ever the customer of a failed firm, I urge
you to immediately read SIPC's step-by-step guide
for submitting the proper claim forms. It's necessary
to 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.
BUYandHOLD
does not recommend any securities. The security mentioned
above is being used for illustrative purposes only
and should not be regarded as an offer to sell or
as a solicitation of an offer to buy.
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