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A Quick Review of SIPC’s Investments

Posted by Larry Doyle on August 22, 2009 1:16 PM |

Given the concerns I have raised about the investment portfolio of FINRA, I wondered if the same problems may reside within the investment portfolio of SIPC (Securities Investor Protection Corporation).

In the process of looking through SIPC’s Annual Reports and Financial statements for the last 4 years (SIPC Annual Reports), I see that SIPC holds approximately $1.7 billion in U.S. government securities. Whatever else one may want to say about SIPC, the fact is its investment portfolio is positioned appropriately given the nature of the organization and its work.

Contrast SIPC’s portfolio with that of FINRA’s which up until this past April held a mix of common equities, fixed income, hedge funds, fund of funds, and private equity. Given the nature of FINRA’s work, why didn’t it strictly hold U.S. government securities as well? What answers lie within that FINRA portfolio?

I will not absolve SIPC completely. In his “Message from the Chairman” in SIPC’s 2007 Annual Report, SIPC Chair Armando J. Bucelo, Jr. made a statement which he would probably like to retract. Bucelo wrote:

The year 2007 saw an event which has never previously occurred in the 37 year history of SIPC. During the year, SIPC was not called upon to initiate a customer protection proceeding for any SIPC member brokerage firm. Indeed, in the four year period from 2004 to 2007, SIPC was called upon to initiate proceedings for a total of only six brokerage firms. This is the lowest number of new proceedings during any four year period in our corporate history. As I have mentioned before in previous Annual Reports, I attribute this extraordinary result to the vigilance of the Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the state regulators, who assure customers that their assets are properly segregated and that brokerage firms maintain capital adequacy.

I will grant that Mr. Bucelo was clearly currying favor with his regulatory colleagues; however, while these regulators were sleeping, the seeds of destruction on Wall Street were growing strong.


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