Vanderbilt Law Review


Allan Gates

First Page



It has long been a matter of common knowledge that securities, investment involves an element of financial risk. In addition to the obvious hazards of injudicious investment, such as market decline and failure of the corporate venture, there is an appreciable risk of financial loss to the investor due to the potential insolvency of his broker-dealer. Until recently it had been the policy of the federal government to restrict its protection against this latter risk to measures designed to prevent broker-dealer insolvencies and, when an insolvency did occur, to an ordering of the priorities of customer claims in bankruptcy. In the last session of the 91st Congress, however, a dramatic departure was taken from this traditional federal policy. Disturbed by the financial distress in the securities industry and dissatisfied with the traditional scheme of federal protection, Congress enacted the Securities Investor Protection Act of 1970 to insure investors against loss due to broker-dealer insolvency. The purpose of this Note is to present a general overview of this new remedial role of the federal government in the field of investor protection. Specifically, the Note will examine the risks that precipitated the legislation, the prior regulatory efforts to alleviate these risks, and the scope and significance of the 1970 Act.