Why brokerage account insurance is a bigger scam than Madoff

Stephen P. Harbeck, president and CEO of the Securities Investor Protection Corporation (SIPC), has written a strongly worded response to my Forbes column entitled “Close Your Brokerage Account.” A longer version of that column, entitled “Why No One Should Use Brokerage Accounts,” was published on the Making Sen$e page. Mr. Harbeck claims that my columns in Forbes and on the Making Sen$e pages are “misleading in the extreme.” I omitted no facts that were relevant to the point that investing funds in brokerage accounts runs the extreme risk of a) paying taxes each year on the reported appreciation and b) withdrawing those funds, spending them on a legitimate purpose (charity, supporting older parents, tuition, etc.), and then being sued by a SIPC-appointed trustee because it turns out that your broker, or the broker at the next desk, was a crook. If you are sued, you will potentially have to pay back every penny you withdrew in the last two years (six years if the trustee gets his way in federal court). More on PBS here.