If the borrower of the security fails to return it you would get reimbursed. M1 is SIPC insured which includes coverage for up to $500,000 ($250,000 of which can be in cash). In an actual doomsday situation of M1, SIPC will step in and help just as they did with Bernard Madoff and the Lehman Brothers. And no, if you have more than $500,000 in stock, you are not at risk. In a major default most of those assets have been recovered with the rest paid out by SIPC.

How likely do I think a massive failure happening to M1? I say incredibly slim. There is so much financial red tape and requirements needed to get SIPC insured. So unless there is massive amounts of illegal activity and fraud (neither of which do I think are true), you are probably just as safe here as you would be anywhere else.