SIPC: 2001 SET RECORD FOR NUMBER OF CUSTOMERS PAID, AMOUNT OF ADVANCES
2001 Ushered in Largest Brokerage Bankruptcy Case Ever
WASHINGTON, D.C. - March 13, 2002 - The Securities Investor Protection Corporation (SIPC), which maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms, made net advances totaling an estimated $112 million to approximately 179,500 investors in 2001, compared to just $23 million paid out to 1,148 investors in 2000. The payments made by SIPC to investors in 2001 were roughly twice the previous one-year record of $63 million in 1981.
The term "net advances" refers to money drawn from SIPC's reserves (in the absence of sufficient funds at the failed brokerage firms) in order to make investors whole, as is provided for under the non-profit's rules.
Another sign that 2001 was a busy year for SIPC: The non-profit organization opened 12 new brokerage firm liquidation proceedings, compared to just five in the year 2000. The 2001 total included MJK Clearing Inc., of Minneapolis, MN, the largest liquidation case in SIPC's history. To find a higher one-year level of brokerage liquidations, SIPC had to go back to 1992, when 13 proceedings were initiated.
SIPC President Michael Don said: "Last year turned out to be an excellent example of what we mean when we say that SIPC is the investor's first line of defense when a brokerage firm fails. It also was the case in 2001 that SIPC made major strides to make sure that we are doing everything we can to inform investors about the extent and limits of the protections that we provide under federal law."
The Spectrum case follows closely on the heels of a record-setting case handled by SIPC. On October 2, 2001, SIPC announced a record payment of $177 million to restore stocks and cash to 175,000 investors due to a default by MJK Clearing, Inc. MJK Clearing, Inc., is the parent company of Miller Johnson Steichen Kinnard, Inc., a full-service brokerage firm headquartered in Minneapolis, Minnesota with 400 investment executives in eight states.
In 2001, SIPC handled the liquidation of two large regional brokerage firms. In the case of Donahue Securities of Cincinnati, Ohio, SIPC mailed out 26,400 claim notices to customers and transferred 5,500 accounts to another broker/dealer. In its largest case ever, SIPC oversaw the transfer of customer accounts at MJK Clearing Inc. in Minneapolis, Minnesota. The congressionally mandated organization mailed out 211,800 claim notices to MJK customers and transferred 173,500 accounts to another broker/dealer within seven days of the filing date. SIPC also advanced $177 million to the trustee in the MJK case in order to free up customer assets that were in the hands of third parties.
Other major developments during 2001 included:
* SIPC completely overhauled its Web site to make it easier for investors to understand the organization and how to file claims. Included in the new site is the "SIPC Claim Center," which allows claims to be filled-out online. However, all original signed forms and related attachments still must be received by the designated trustee overseeing a liquidation proceeding.
* The basic brochure that SIPC provides to customers and the securities industry was completely reworked to make it easier for investors to understand. The new brochure provides plain English answers to the seven most commonly asked questions about SIPC. It also emphasizes the need for investors to document their concerns in writing as soon as they suspect that their funds are being mishandled.
* SIPC collaborated with the National Association of Investors Corp. -- the national association of more than 600 investor clubs - on a national survey identifying deficiencies in the "investment survival skills" of American investors. The survey results related to investor misunderstandings about SIPC coverage are now being used to guide SIPC investor education efforts.
* SIPC joined the Alliance for Investor Education (AIE) as a member in order to create wider investor awareness of SIPC and the extent and limits of the protections that it provides. The involvement in AIE also provides SIPC with the means by which to network with other organizations and experts that are devoted to improved investor education.
For 2002, SIPC already is working on a national radio and television public service announcement (PSA) campaign. The organization also will prepare a simplified, plain-English "How to File a Claim" booklet to help investors at bankrupt brokerage firms.
From its creation by Congress in 1970 through December 2001, SIPC advanced $513 million in order to make possible the recovery of $13.9 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.
SIPC is an important part of the overall system of investor protection in the United States. 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. The statute 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 $500,000. This figure includes a maximum of $100,000 on claims for cash.
Recovered funds are used to pay investors whose claims exceed SIPC's protection limit of $500,000. 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 proceeding.
FOR MORE INFORMATION, CONTACT:
Ailis Aaron, The Hastings Group,
(703) 276-1116 or email@example.com
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