SIPC Offers Little Protection for Investors from Scams

The Securities Investor Protector Corporation is a non-profit government-mandated corporation which protects investors from financial harm in the the investor’s brokerage company fails. As investors in the R. Allen Stanford Ponzi-scheme found out, the SIPC offers little protection to investors who are swindled by con artists.

Investors lost over $7 billion by investing with Allen Stanford and now it has been reported that the Securities Investor Protection Corporation (SIPC) has issued a blanket rejection for all of Stanford’s customers.

The SIPC’s insurance covered investors that fell for Bernie Madoff’s Ponzi scheme. And although Stanford International Bank was selling CD’s and advertising it as an SIPC member, it won’t help victims of Stanford’s scheme because the investors have ownership of the certificates they were granted. The SIPC doesn’t consider that the CD’s purchased went down in value as a result of fraudulent activity cause to reimburse the victims of Stanford’s scam.

The lesson to be learned from the SIPC’s decision is to understand that the SIPC is not a public institution like the FDIC or the NCUA. It’s a privately held non-profit that’s funded by its members. There’s no guaranteed protection in the event of blatant fraud or if a hacker breaks into your account and transfers your money away.

You are the only person that can keep yourself safe from investment fraud. Individuals offering above market guaranteed rates should be met with skepticism. Carefully review each investment that you make—if you can’t understand it, don’t invest in it. If you can’t understand why a particular firm is offering dramatically better rates than another, there’s probably a problem.

You also need to keep guard of your investment account. Don’t access it using public computers and login regularly to make sure that your account has been broken into.