USA: USD4.5 million "missing" at brokerage firm

No further details about the liquidation proceeding are available to the media from the trustee, pending the outcome of the investigation. The Securities Investor Protection Corporation (SIPC) is equally tight lipped although it has said that it is to "help investors." SIPC has, historically provided legal and technical assistance to investors and worked to recover funds to repay investors.

SIPC is a little known part of the USA's investor protection system and, although not a regulator, it performs some regulator-like functions.

From its creation by Congress in 1970 until December 2001, SIPC advanced USD513 million in order to make possible the recovery of $14.0 billion in assets for an estimated 622,000 investors. SIPC estimates that more than 99 percent of eligible investors have been made whole in the failed brokerage firm cases that it has handled to date.

While a number of federal, self-regulatory and state securities agencies deal with cases of investment fraud, SIPC's focus is both different and narrow: restoring funds to investors with assets in the hands of bankrupt and otherwise financially troubled brokerage firms. The Securities Investor Protection Corporation was not chartered by Congress to combat fraud.

SIPC either acts as trustee or works with an independent court-appointed trustee in a fraud case to recover funds. In the case of Rocky Mountain Securities, the trustee is a Denver lawyer. The Act that created SIPC rules provides that customers of a failed brokerage firm receive all non-negotiable securities 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 USD500,000, including up to USD100,000 on claims for cash.

Recovered funds are used to pay investors whose claims exceed SIPC's protection limit of USD500,000. SIPC often draws down its reserve to aid investors. Recovered funds also are used to replenish SIPC's reserve in the event that the reserve is tapped in the early stages of a liquidation.