How to Make A Claim If Your Broker Rips You Off Understanding the Securities Investor Protection Corporation

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Elder Abuse & Financial Exploitation Attorney

When a brokerage firm goes under and owes customers cash and securities that are missing from a customer’s account, the U.S. Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA) will often come to the rescue. If grounds exist to start liquidation, the SIPC may ask a federal court to appoint a Trustee to liquidate the failed firm for the protection of customers. With smaller brokerage firm failures the SIPC sometimes deals directly with customers in an out-of-court direct payment procedure.

Up to $500,000 for Securities

SIPC protects customers against the loss of their stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds, and certain other investments as “securities”, held for them by the broker.

SIPC does NOT protect commodity futures contracts (unless held in a special portfolio margining account), foreign exchange trades, fixed annuity contracts, or investment contracts (such as limited partnerships) that are not registered with the I.S. Securities and Exchange Commission under the Securities Act of 1933.

$500,000 Limit Includes up to $250,000 for Cash

SIPC protects cash in a customer’s brokerage firm account resulting from the sale of a customer’s securities or held in a customer’s account for the purchase of securities. Cash held in connection with a commodities trade or currency trade is not protected by SIPC. Money market mutual funds, sometimes thought of as cash, are protected as securities by SIPC. SIPC protects cash held by the broker for customers in connection with the customers’ purchase or sale of securities whether the cash is in U.S. dollars or denominated in non-U.S. dollar currency.

Investors with Multiple Accounts

Protection of customers with multiple accounts at the same brokerage firm is determined by “separate capacity”. Each account, held by a customer in a separate capacity, is protected up to $500,000 for securities and cash (including $250,000 limit for cash only). Accounts held in the same capacity at the same brokerage firm are combined for purposes of the SIPC protection limits.

Examples of separate capacities are:

  • individual account;
  • joint account;
  • an account for a corporation;
  • an account for a trust created under state law;
  • an individual retirement account;
  • a Roth individual retirement account;
  • an account held by an executor for an estate; and
  • an account held by a guardian for a ward or minor

How might you prove what the broker owes you?

When you fill out the claim form, you are asked to describe the cash and securities owed to you. The Trustee will compare what you claim against the books and records of the brokerage firm. If you complained in writing about the handling of your account, you should also include that information with your claim. If needed, the Trustee may ask you for more information. You should keep copies of trade confirmations and your latest monthly or quarterly statement of account from your brokerage firm in case these documents are needed by the Trustee.

To discuss a NJ Elder Abuse and Financial Exploitation matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.