Recent news on MF Global suggests the possibility that the brokerage firm did not segregate customer accounts.
Suppose I have an account at MF Global and suppose they have failed to segregate my account. The company goes bankrupt.
Would the SIPC protect me in this case?
What if I were a company with more than $500k at the brokerage? Would all funds above $500k be lost?
The SIPC would protect individual investors up to $500K for securities & cash, with a max of $250K for cash. One would receive all securities that are already in your name or in the process.
In case client money was diverted to company trades, then SIPC will investigate and try to find out how much money belonged to each customer. It would determine this on various inputs including your transaction records like money to transferred to MF Global, internal records, amongst other things.
More information in the SIPC bulletin: http://www.sipc.org/Media/NewsReleases/release31Oct2011.aspx
