Although created by federal legislation and overseen by the Securities and Exchange Commission, the SIPC is neither a government agency nor a regulator of broker-dealers.

The purpose of the SIPC is to expedite the recovery and return of missing customer cash and assets during the liquidation of a failed investment firm.

Of these five members, three shall be selected from among persons who are associated with, and representative of different aspects of, the securities industry, not all of whom shall be from the same geographical area of the United States.

In December 1970, Senator Edmund Muskie pushed forward a bill to create a Federal Broker Dealer Insurance Corporation.

Excerpts from the President's statement made clear the goals of the legislation:[6] I AM SIGNING today the Securities Investor Protection Act of 1970.

It does not cover the equity risk that is always present in stock market investment, but it will assure the investor that the solvency of the individual firm with which he deals will not be cause for concern.

The resultant breakdown in the securities processing mechanism caused chaos as the number of errors in recording transactions multiplied.

This operational and financial crisis forced more than one hundred brokerage firms into liquidation causing thousands of customers to be seriously disadvantaged.

... Securities brokers support the proper functioning of these markets by maintaining a constant flow of debt and equity instruments.

The continued financial wellbeing of the economy thus depends, in part, on public willingness to entrust assets to the securities industry.

[12] In order to state a claim, the investor is required to show that their economic loss arose because of the insolvency of their broker-dealer and not because of fraud,[13] misrepresentation,[14] or bad investment decisions.

[15] While customers' cash and most types of securities - such as notes, stocks, bonds and certificates of deposit - are protected, other items such as commodity or futures contracts are not covered.

Investment contracts, certificates of interest, participations in profit-sharing agreements, and oil, gas, or mineral royalties or leases are not covered unless registered with the Securities and Exchange Commission.

[19] Account disputes with a brokerage that remains in business are not handled by the SIPC, but typically by the Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission (CFTC).

The suit contends that flawed design and inappropriate implementation within the project gave rise to conflicts of interest, suspected vendor fraud, and possible violations of the Securities Investor Protection Act of 1970.