FINRA Advises Investors on How to Safeguard Their Brokerage Accounts

September 15, 2008

In light of the announcement by Lehman Brothers Holdings Inc. to file for Chapter 11 bankruptcy protection, your firm may receive questions from investors about the safety of the assets in their accounts held at your firm. As you know, the securities industry has multiple layers of protection to ensure customer accounts are safe. In times like these, we feel it's important to educate investors on these safeguards.

Today, FINRA issued an Investor Alert, entitled If a Brokerage Firm Closes Its Doors, to help investors understand the customer protections under SEC rules and Securities Investor Protection Corp (SIPC). As highlighted in our Investor Alert, it is important for investors to know:

  • While Lehman Brothers Holdings Inc. filed for protection under Chapter 11 of the bankruptcy laws this morning, the firm's U.S. regulated broker-dealers, Lehman Brothers, Inc. and Neuberger Berman LLC, are still solvent and functioning. The U.S. broker-dealers have not filed for bankruptcy, and they are expected to close only after the orderly transfer of customer accounts to other registered and SIPC-insured broker-dealers.
  • Under SEC rules, broker-dealers must keep customers' securities and cash segregated from their own so that the customers' assets will be safe.
  • The SEC also requires broker-dealers to maintain adequate net capital to reduce the likelihood of insolvency.
  • Broker-dealers are also required to be members of the SIPC, which insures customer securities accounts up to $500,000. SIPC is used in those rare cases of firm failure where customer assets are missing because of theft or fraud. In other words, SIPC is the last course of action in the unlikely event that the other customer protections have failed.

FINRA is working closely with Lehman Brothers, the SEC and other regulators to ensure a smooth transfer of customer accounts from Lehman to one or more broker-dealers. Still, we understand that the days ahead may cause some anxiety for customers, and we are here to help.