Show Me the Certificates!

The founder of The Merrill Anderson Company was a courtly gent. Only once did I hear an edge in his voice when he addressed a client.

I think we were in Boston, probably at State Street. The client was describing the features of a custody account: "We clip coupons and otherwise collect income, watch for call dates, keep securities safe in our vault and …"

"Do you?" Merrill interrupted. "You keep the securities certificates right here in your vault?"

Yes, the client assured us. They really did.

At the time, the early 1960s, trust departments were probably starting to outsource by using depository trust companies, so the question wasn't out of line. Still, young and innocent me thought Merrill was fussing over a minor matter.

But it wasn't a minor matter during the Great Crash and Depression. My father, it occurs to me, always had his broker send him the certificate when he bought a stock.

And it's sure not minor in the age of Madoff. Yesterday's stories in The Washington Post and The New York Times should terrify investors.

Worst failure by the SEC in its 75-year history? Sure hope so. As the NYT reports, H. David Kotz, the agency's inspector general, found "incidents in which investigators seemed hopelessly out of their depth, far too credulous and perhaps just plain lazy."

If our broker didn't charge so much for the service, I'd be sorely tempted to demand, "Show me the certificates," and put them in our safe deposit box.

Repercussions? Will the Madoff debacle have a long-term effect on high-net-worth investors? Could the investment-management arms of community and regional banks benefit? In this age of electrons and pixels, how does even the most trustworthy of custodians prove its trustworthiness?

Sign of the times. Though most boomers may never have possessed a stock certificate, cancelled or deceased certificates have become popular collectibles. With every order, Scripophily.com is right now offering a free GM!