Office of Financial Institutions
OFI Reminds Investors of Account Safeguards

Press Release Date:  Wednesday, March 26, 2008  
Contact Information:  Kelly May
Public Information Officer
502-573-3390 Ext 252

    FRANKFORT, Ky. (March 26, 2008) – In the wake of recent turbulence in financial markets, the Kentucky Office of Financial Institutions (OFI), today joined with national securities organizations to remind investors of the important and effective safeguards already in place to protect their brokerage account assets.

    “In light of recent market turbulence and the demise of Bear Stearns – a major Wall Street firm – it is understandable that investors may have questions about the safety of assets in their brokerage accounts,” said OFI Securities Division Director James C. Strode. “We want to ensure that investors are well informed about their rights and protections under our nation’s securities laws.”

    The Securities Industry Protection Corporation (SIPC) maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms. SIPC either acts as trustee or works with an independent court-appointed trustee in a brokerage insolvency case to recover funds. The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities – such as stocks or bonds – that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash. 

    SIPC president Stephen Harbeck said: “When a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers’ cash, stock and other securities.” 

    Rules of the U.S. Securities and Exchange Commission (SEC) require registered broker-dealers to maintain net capital to provide financial resources so that customers will get their cash and securities back if the firm fails. According to the SEC, customer claims for their funds and securities are paid before other claims on the broker-dealer.

    In addition to the protections provided by SIPC and the SEC’s net capital rule, the SEC requires registered broker-dealers to place client assets into accounts segregated from the brokers’ own proprietary funds and securities. As a result, clients are protected from the firm’s trading losses. 

    The phrases “Member Securities Investor Protection Corporation” or “Member SIPC” appear in all signs and ads of SIPC members. To find out whether a particular firm is a member of SIPC, call the SIPC Membership Department at 202-371-8300 or visit

    The SIPC protects investors in the event a brokerage firm fails, owing customer cash and securities that are missing from customer accounts. From the time Congress created it in 1970 through December 2006, SIPC has advanced $505 million in order to make possible the recovery of $15.7 billion in assets for an estimated 626,000 investors. For more information about SIPC, see “The Investor’s Guide to Brokerage Firm Liquidations” at

    “Always be sure to check the license or registration of an investment and the person selling it before making a commitment. Investors can do this through the Kentucky OFI Search for an Entity or the national Broker Check link at or by calling 800-223-2579,” said OFI Executive Director Cordell Lawrence.

    OFI is a member of the North American Securities Administrators Association (NASAA), the oldest international organization devoted to investor protection. NASAA also joined the SIPC in reminding investors of the safeguards in place for brokerage account assets.

    OFI is an agency of the Department of Public Protection in the Environmental and Public Protection Cabinet.  It supervises the financial services industry by examining, chartering, licensing and registering various financial institutions, securities firms and professionals operating in Kentucky. OFI’s mission is to serve the public through effective and efficient regulation that promotes consumer confidence and economic growth.