SIPC stands for Securities Investor Protection Corporation. This is a federally-credited non-profit organization. The SIPC's goal is to rush in to help when a brokerage firm is closed due to bankruptcy and other financial difficulties and customer assets go missing. SIPC works to return customers' cash stock and other securities as fast as possible. Without this corporation, investors at financially devastated brokerage firms could possible lose their securities or their money or need to wait for years while their assets were tied up in court because the brokerage firm is undergoing bankruptcy.

CIPC is governed by a law called the Securities Investor Protection Act (SIPA.) This is an act that was enacted in 1970 and is listed in Title 15 of the Bankruptcy Code. The SIPC can get involved in a bankruptcy case when a SIPC-member brokerage fails. If the brokerage has filed for bankruptcy, then the SPIC has the right to file a lawsuit in a district court requesting a protective decree for customers. If the lawsuit is granted, then the Chapter 7 bankruptcy that was filed will be put on hold and the case will instead turn into SIPA liquidation.

The SIPC then has the ability to ask as a trustee or to work with an independent court-appointed trustee in a missing asset case. In some situations, they may be able to recover funds for customers this way. The SIPC has created statutes to govern their goals. One of these goals is to make sure that customers of a failed brokerage receive all non-negotiable securities that are already registered in their names or in the process of being registered. Other street name securities can be distributed on a pro rata basis, and funds from the SIPC reserves can be used to satisfy claims of customers up to $500,000.

SIPA liquidations are very different from Chapter 7 bankruptcy liquidations. This is because in a Chapter 7 bankruptcy regarding a brokerage firm, the trustee is required to sell all securities held in street name. The Bankruptcy Code declares that when a brokerage firm uses the Chapter 7 method the brokerage firm is required to reduce to money all securities that are held as property of the estate except for customer name securities.

Chapter 7 customers typically receive a pro rata share of the proceeds of the liquidation of the securities, but they are not given the securities themselves. The only securities that are not sold in this situation are customer name securities which are handed back to their owners. When a brokerage firm chooses to use SIPA liquidation instead, the trustee's goal is the opposite. Instead of being required to sell the securities, a SIPA trustee works to return to customers the securities that are in their accounts. Normally, in order to do this the trustees transfer all securities to a different brokerage firm that is not in financial ruin.

Customer name securities are limited securities that are held be a brokerage firm and are registered with the issuer in the customer's name. For example an actual stock certificate registered in and breaking the customer's own name would be considered a customer name security. Most securities aren't registered to customers, but instead they are registered in "street name."

This is when the actual legal owner is the Depository Trust Corporation's nominee name. SIPA litigations of this nature can be excessively complicated and involved. If you want assistance with a SIPA liquidation case, then you need to contact a lawyer right away for more information. The right attorney can assist you to get the representation and information that you need in one of these brokerage bankruptcies!