Opinion ID: 334852
Heading Depth: 1
Heading Rank: 2

Heading: the statutory setting

Text: SIPA was enacted by Congress in 1970 7 to afford protection to public customers in the event broker-dealers with whom they transact business encounter financial difficulties and are unable to satisfy their obligations to their public customers. S. E. C. v. Alan F. Hughes, Inc., 461 F.2d 974, 977 (2d Cir. 1972). 8 To this end SIPA establishes a Securities Investor Protection Corporation, commonly known by the acronym SIPC. SIPC is a non-profit membership organization, whose members include all brokers or dealers who are members of a national securities exchange or are otherwise registered as brokers or dealers under 15 U.S.C. § 78o (b). Unless a broker or dealer falls within one of the exceptions (not relevant here) contained in § 78ccc(a)(2)(B), membership in SIPC is mandatory. The role of SIPC has been aptly described by one commentator: 9 SIPC's main function is to step in to liquidate a broker or dealer when customers' assets are in danger, and to protect a customer up to a total amount of $50,000 represented by proven claims to cash and securities expected to be in the hands of the broker or dealer. But no more than $20,000 represented by claims to cash can be recovered under the protective plan of SIPC, though the claim to securities may exceed this limit. 2 10 The decision to advance monies in satisfaction of outstanding claims against a bankrupt broker-dealer turns on whether the claimant qualifies as a customer of the broker-dealer. The maximum award available turns on whether the customer's losses arise from cash, or from securities held by the debtor. 3 The pertinent definitional language states that 11 customers of a debtor means persons (including persons with whom the debtor deals as principal or agent) who have claims on account of securities received, acquired, or held by the debtor from or for the account of such persons (I) for safekeeping, or (II) with a view to sale, or (III) to cover consummated sales, or (IV) pursuant to purchases, or (V) as collateral security, or (VI) by way of loans of securities by such persons to the debtor, and shall include persons who have claims against the debtor arising out of sales or conversions of such securities, and shall include any person who has deposited cash with the debtor for the purposes of purchasing securities, but shall not include any person to the extent that such person has a claim for property which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor or is subordinated to the claims of creditors of the debtor . . . 12 15 U.S.C. § 78fff(c)(2)(A)(ii) (emphasis added). 13