Final answer:
The Securities Investors Protection Act of 1970 protects investors from losses arising from brokerage firm failures, ensuring they can recover assets up to certain limits in cases of brokerage insolvency. It does not protect against bad investment decisions, advisor negligence, or guarantee the provision of a prospectus for new issues.
Step-by-step explanation:
The Securities Investors Protection Act of 1970 was established to offer a specific type of protection to investors. This act does not protect investors from all kinds of losses, but rather focuses on a particular scenario. The correct answer to which statement is true regarding the Securities Investors Protection Act of 1970 is (D) The act protects investors from losses arising from brokerage firm failures.
The Act was created to safeguard the clients of brokerage firms against the firm's insolvency, not to insure against the market risks associated with trading securities. While making investment decisions comes with its inherent risks, and the Act does not protect against bad investments or negligence from an investment advisor, it ensures that investors can recover their securities and cash up to a certain limit if their brokerage firm fails financially.
It's important to note that other acts and commissions, like the Federal Securities Act and the Securities and Exchange Commission (SEC), serve to protect investors by establishing standards for transparency and fair dealings in the securities market. The Federal Securities Act requires issuers of new securities to provide a prospectus and full disclosure to the purchasing public, while the SEC serves as the regulator for the investment industry.