Brokerage Liquidation and Clawbacks

[randomep]

 

Hi all, Just thinking of the madoff case and saw an article in Forbes (or Fortune). In it, the author claims SIPC at times doesn't protect you because of clawbacks. That is, if a broker is fraudulent and suppose they took your money and never traded the securities that you wanted to trade, you are only entitled to the money you initially put in.

 

So suppose you invested $1mil a long time ago and it became $2mil due to your own trading of securities.  And many years ago you withdrew $1.5mil.  Now suppose the broker has gone bankrupt and we found out they never traded anything for you. Then, even though you have $500k left and that is the maximum amount covered by sipc, they claim you got more money that you put in and so you won't get a dime from them.

 

Is my understanding correct?

 

that seems to the implication of clawbacks.....

 

thanks in advance

[muscleman]

That comes to another question: How do we figure out if the broker has traded your security? I assume if you receive the proxy documents, that would mean the broker has bought the stock you wanted them to buy?

[DTEJD1997]

There is talk in Detroit that there will be "clawbacks" on some of the city pensions.

 

It is my understanding that the argument is that in some prior years pensions return's did not match what was required.  The city then sold bonds to make up for the difference.  The theory as I understand it is that they are claiming the pensioners were not entitled to the returns they got in some past years as bonds were sold to make up for it.

 

There are reports that some workers will have to repay $600 a month for 25 years out of their future pension disbursements.

 

No doubt that Detroit pensions will have to take a hit, but clawbacks don't quite seem right to me.