What happens to my account when the broker goes bankrupt?

For those that have brokerage accounts with Bear Sterns, they may be wondering if they will get all their money back due to the near bankruptcy and recent buyout proceedings. Luckily, there are insurance and regulations set up to protect individual investors in many, but not all situations.

Bear is supposed to keep individual account holdings separate from their operating holdings, but if you lose funds due to negligence or misappropriation of funds you will likely be covered by $500,000 of SIPC insurance. This insurance does not protect investors from fraud or market related investment losses. Also, certain “exotic” investments like futures contracts and other derivatives may not be covered.

It’s important to note that FDIC insurance is completely separate and operates in a slightly different way. To find out more on SIPC check with your custodian and research the details here. Custodians/Brokers often carry additional insurance to cover accounts beyond the SIPC limits - yet another issue that should be checked on.