Spurred by the release of former Wall Street hedge-fund manager and financial expert David Rogers Webb’s groundbreaking expose, “The Great Taking”—and by subsequent research verifying Mr. Webb’s claims—lawmakers in South Dakota have introduced legislation that seeks to protect their citizens’ fundamental property rights.

While sources tell us that several other states are considering similar legislation, this is something that all states must prioritize because this issue completely transcends traditional party lines.

Important laws in all 50 states have been added to state codes over the past three decades, specifically within provisions dealing with Article 8 of the Uniform Commercial Code (UCC). These laws, drafted and propagated by the influential Uniform Law Commission in tandem with powerful banking lobbyists, were seemingly deliberately designed to revoke Americans’ private property rights—specifically those related to investment securities, such as those held in IRA and 401(k) accounts.

Essentially, the world’s largest financial institutions—quietly preparing for the event of a major financial meltdown—successfully lobbied state legislatures to change the way that collateral is held under state laws. Among other things, these efforts have given creditors—in the form of “too-big-to-fail” banks and other powerful financial interests—priority claim over all wealth stored in investment securities, such as in stocks, bonds, mutual funds, exchange-traded funds, 401(k) accounts, IRA accounts, and other types of securities, instead of the security purchaser.

After reading “The Great Taking,” I was highly concerned. And, after I reviewed the primary documents Mr. Webb cites, examined the writings of legal scholars analyzing the changes to Article 8 of the UCC, studied the relevant provisions within the UCC that have been changed, and confirmed that states have uniformly adopted these new provisions, I found that Mr. Webb’s claims have proven to be completely accurate.

From a legal standpoint, much of what we believe to be our wealth is not, in fact, ours. And, in the event of a financial crisis—which seems more and more likely with every passing day—we could lose everything to the “too big to fail” financial institutions.

It’s important to clarify that when I say “we,” that truly means everyone who holds any type of investment security. No one is exempt from this potential “taking,” from the least wealthy to the most affluent members of society.

To put this in simpler terms, consider the following example: If you were to contact your broker today to purchase 10 shares of a certain company (Google, for example), your broker would then add those 10 Google shares to your account. You would probably think that you would own those 10 Google shares, but you wouldn’t. What you would actually own is a “security entitlement” to the shares rather than the underlying shares themselves. This is explicitly stated throughout Article 8 of the UCC.

A security entitlement is basically a contract with your broker that grants certain rights to a specific type of security, meaning that when you “purchase” a security, you own only certain contractual rights to it, rather than the security itself. This is bad enough on its own, but the problem is actually far worse.

Under UCC Article 8, protected creditors of securities intermediaries—such as the world’s largest banks—are given priority ownership to security entitlements if they use customer assets as collateral. What this means is that if your broker were to go bankrupt, the broker’s secured creditors would be given priority over what you thought was your security entitlement. You would become an “unsecured creditor,” and your claim to your securities would be at the very back of the line. In the event of a widescale financial crash, millions of investors could lose everything to those secured creditors.

In fact, this exact scenario has already occurred, albeit on a smaller scale. When Lehman Brothers filed for bankruptcy during the 2008 financial crisis, one of its primary lenders—JPMorgan Chase Bank—was able to take all of Lehman’s accounts as collateral for the loans that Lehman couldn’t pay. JPMorgan was legally allowed to do this, because it operated as Lehman’s custodian, but also as its lender, meaning that it had a security interest in Lehman’s assets. As a result, the courts ruled in favor of JPMorgan, based on the altered UCC provisions plus a convenient change to the U.S. Bankruptcy Code in 2005.

In “The Great Taking,” Mr. Webb concludes that “the bankruptcy of Lehman Brothers was used to establish case law precedent that the ‘protected class’ of secured creditors have an absolute priority claim to client assets, and that, potentially and practically, only they will end up with the assets.”

The scale of the “taking” of our property rights that has occurred is nothing short of stunning. The next step could be the “taking” of our actual property, not just our rights to it.

The problem we face is daunting. So are the adversaries who will come out of the woodwork to ensure this corrupt system remains in place, primarily in the form of bank lobbyists and other powerful financial interests backed by unlimited resources and a special relationship with the U.S. Federal Reserve.

The good news, however, is that there are solutions. Because the UCC is state law, state lawmakers can take very concrete steps to restore the property rights of their constituents almost immediately.

As the first-of-its-kind South Dakota legislation attempts to do, policymakers must ensure that individual investors have priority claim over their security entitlements held by brokerage firms and other intermediaries.

Second—again, as the South Dakota legislation attempts to do—policymakers should alter jurisdictional provisions so that cases are determined in the state of the individual investor, rather than the state of the broker, creditor, custodian, or clearing corporation.

There are likely additional alterations to UCC Article 8 (and Article 9, for that matter) that should be explored. However, these two policy changes are a critical place to begin.

I don’t believe that a system that would sacrifice the wealth of individual investors in favor of the world’s largest banks is worthy of protecting. I would imagine that state legislators and the general public would agree.

The clock is ticking. Policy changes such as those now on the legislative docket in South Dakota should be replicated in the 49 other states to protect the property rights of all Americans.

Written by Jack McPherrin for The Epoch Times.