I can answer. Your IRA is almost certainly held at a Citi brokerage entity (as opposed to a banking entity) and brokerage bankruptcies are governed by the SIPA (Securities Investors Protection Act ) rules as opposed to the Bankruptcy Code. Brokerage bankruptcies were quite common pre-New Deal, and occasionally still happen (Lehman, MF Global). To summarize a very complicated situation, the assets will be presumptively liquidated very quickly and distributed as soon as possible (brokerages do not reorganized for all practical purposes). First, secured creditors get paid, but this will not affect you because by rule the brokerages cannot give customer property (assets held by the brokerage on behalf of the customers) as collateral (except under certain circumstances that will not have applied to you). Next in priority will be customers like you. To avoid fights over whose bond belongs to who, SIPA treats all customers as creditors and not owners, and puts all customer claims (claims of customers for whom the brokerage acted as broker) into one big class, and the class then share all customer property pro rata. If there is anything left over, then general unsecured creditors (e.g., lenders who lent money to the brokerage) will share pro rata.
As a practical matter, provided the brokerage followed the regulatory rules, it is almost impossible for the brokerage to be actually insolvent as to the customer claims. Therefore, instead of going into the market and selling all of the securities as soon as possible (which could really negatively affect prices), it is much more common for the individual customer accounts to be transferred to a solvent brokerage within a matter of days (the Lehman brokerage accounts were moved to Barclays within one week of the Lehman bankruptcy), so you would not experience anything other than a letter informing you that your account was moved. This is very similar to what happens when the FDIC takes over a bank and the deposit accounts get transferred. MF Global is a scandal, because money was improperly transferred from the brokerage unit to proprietary trading affiliate when they were desperate for cash. David Shemano From: [email protected] [mailto:[email protected]] On Behalf Of [email protected] Sent: Monday, June 04, 2012 11:06 AM To: Progressive Economics Subject: [Pen-l] IRA question I have an IRA with Citi. Most of the money is in bonds: Ginny Mae, Treasury Bonds, Russian bank bonds, etc. Some is in money market which my broker says is insured. If something happens to Citi, can I lose money? That is, is Citi just an intermediary? Are the bonds that I own still good in the event of a Citi failure? Thanks, Joanna ________________________________
_______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
