Now that terrorists are racing to set off an atomic bomb in New York City and the New York Times has a green light on giving national secrets to the enemy — raising the odds on a successful nuclear attack — its time to consider the safety of your financial assets.

	Will This Protect You?

It will be too late when a mushroom cloud begins to rise above Manhattan.

Tens of millions of Americans have brokerage accounts with SIPC protection which they think means that they have government insurance of up to $500,000 on stocks and bonds in custody with a broker-dealer, plus $100,000 on cash balances — similar to the FDIC guarantee on bank accounts.

Investors that have less than $500,000 with their broker may think that if an atomic bomb goes off in New York City that their assets will be safe.

Their assets may indeed be safe, depending on the broker, but not because of SIPC protection.

The Truth About SIPC Guarantees

The Securities Investor Protection Corporation is a federally chartered private company (not part of the government) that offers limited protection to some customers of certain broker-dealers in the event of bankruptcy.

However,

• The SIPC program, unlike FDIC, does not have the guarantee of the federal government;

• The SIPC, as of December 2005, only had $1.4 billion in assets — a minuscule fraction of the value of securities in custody with broker-dealers — entirely inadequate for losses in the event of an atomic attack on New York City;

• Even when a broker offers SIPC protection when an account is opened, there is no assurance that this protection will be in place when needed. If a broker is deregistered by the SEC, or fails to pay into the program, the coverage lapses;

• Conditions for coverage under the SIPC program are complex, highly technical, and loaded with exceptions, difficult for most investors to understand or verify (See the Act);

• The SIPC program does not cover investment fraud;

• There is no protection for loss of market value during the many months it may take for the SIPC trustees to return securities to account holders. In the case of a margin account, inability to take defensive action during a long delay in settling a claim may not only wipe out an investor’s assets entirely, but create a substantial liability to be settled;

Without effective and unconditional guarantees from the government for recovery of securities in custody with broker-dealers in the event of destruction of the main records of a broker-dealer, the burden is upon each investor to determine whether a particular broker-dealer is safe or not.

Unfortunately, most investors not only lack the technical competency and understanding of internal broker-dealer systems to judge the disaster resilience of a particular firm, but most broker-dealers do not even provide the information that clients would need to make such a determination.

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