is a glossary of terms that are, for the most part, unique
to the world of financial investigations, or terms that have
a different meaning than that which is commonly understood
when they are used in this context.
Baby Bond: Bonds
with a denomination of less than a $1,000 par value. Baby
bonds are a source of funds to corporations that lack access
to large institutional markets and bring the bond market within
reach of small investors.
Bad Debt: Open
balance or loan receivable that is considered uncollectible
and is written off by a firm. (Reserves are usually maintained
for uncollectible accounts.) The relationship of recoveries
and write-offs to accounts receivable can indicate a firm's
credit and charge-off policies.
Badges of Fraud: Conduct that raises a strong presumption
that it was undertaken with the intent to delay, hinder or
defraud a creditor.
Balance Sheet: A financial
report that entails the status of a corporation's assets,
liabilities, and owners' equity for a specific date, usually
at month end. It only captures this information as of that
date; it does not cover a period of time.
Balloon: 1) A repayment schedule
for a bond issue where a large number of the bonds come due
at a one time (normally at the final maturity date). 2) A
final loan payment that is considerably higher than prior
Bank Guarantee Letter: The
document furnished by a bank certifying that a put writer
has enough funds on deposit at the bank to equal the aggregate
exercise price of the put.
Bankmail: An agreement between a bank and corporation involved
in a takeover. The bank agrees not to finance another acquirer's
Bank of International Settlements
(BIS): Structured like America's Federal Reserve
Bank, controlled by the Basel Committee of the G-10 nations'
Central Banks, it sets standards for capital adequacy among
the member central banks.
Bankruptcy: Private individuals,
privately held corporations and publicly traded companies
may file for protection from creditors under federal bankruptcy
laws. With regard to publicly held companies, these laws govern
how they go out of business or recover from unmanageable debt.
In the event that they file under Chapter 11 of the Bankruptcy
Code in an effort to reorganize and become profitable again,
management continues to run the day-to-day business operations,
but oversight is exercised by the Court. If the company files
under Chapter 7, they cease to do business, and their assets
are liquidated by the Trustee who uses the money to satisfy
debts to creditors and investors. The SEC may intervene if
it appears that the company's officers and directors filed
bankruptcy to shield themselves from lawsuits for securities
“BD” or Form BD: Document that broker-dealers
must file and keep current with the SEC. It provides details
about the firm's principals and officers, net capital compliance,
and financial statements.
Bear and Bull Markets: A
bear market is one in which prices are low or declining; a
bull market is one in which prices are high or rising.
Bearer Bond: A security,
usually a bond, that does not have the owner's name registered
on the books of the issuer or on the certificate. Interest
and principal, when due, are payable to the person in possession
of the bond. The holder sends in or presents a coupon for
payment. Most securities issued today are in registered form.
Bearer Form: A negotiable
instrument including any paper, document or device that can
be used to transfer value (e.g. travelers checks), written
and signed unconditional promises (Promissory Notes), orders
to pay a specific sum or money on demand or at a definite
time are in bearer form if they are readily negotiable, transferable,
payable to order or payable to bearer.
Bellwether: A leading indicator
of trends. A bellwether stock is a stock which is used to
gauge the performance of the market in general. General Motors
is an example of bellwether stock in the past. Hence the saying
"What's good for GM is good for America."
Beneficial Owner: The person(s)
entitled to the benefits of ownership even though another
party such as a broker or bank--the nominal owner--actually
has possession and title to the security. Shares or title
may be held by a bank or broker for safety and convenience,
or in "street name" to expedite transactions, but
the real owner is the beneficial owner.
Beneficiary: A person or
entity who is the recipient of or will receive some or all
proceeds of money or property held by the current owner upon
a specified event or condition. With regard to Trusts, t Beneficiary
is the person(s), company, trust or estate named by the grantor,
settlor or creator to receive the benefits of a trust in due
course upon conditions which the grantor established by way
of a trust deed. An exception would be the fully discretionary
trust. The beneficiary could be a charity, foundation and/or
person(s) which or who are characterized by "classes"
in terms of their order of entitlement or their hierarchy.
Best Execution Requirement:
The obligation of Market Makers, broker/dealers, and others
to execute customer orders at the best price available at
the time the trade is entered.
Blank Check Company: A development
stage company that has no specific business plan or purpose
or has indicated its business plan is to engage in a merger
or acquisition with an unidentified company or companies,
other entity, or person. These very small companies typically
involve speculative investments and often fall within the
SEC’s definition of "penny stocks" or are
considered "microcap stocks." Because of the nature
of blank check companies, the SEC does not allow them to use
some of the exemptions from the registration requirements
when selling their securities.
Blind Trust: A trust whereby
executors have full discretion of assets and the beneficiaries
have no knowledge of holdings within the trust. Blind trusts
are generally used when Settlors/Grantors/Trustors wish keep
beneficiaries in the dark regarding trust assets.
Block: A large quantity of
a security that is either held or traded. Generally, a block
is considered to be 10,000 shares or more of stock and 200,000
or more bonds.
Block Trade: A large amount
of a stock's shares sold as a single unit.
Blue-Sky Laws: Every state
has its own securities laws—commonly known as "Blue
Sky Laws"—that are designed to protect investors
against fraudulent sales practices and activities. While these
laws can vary from state to state, most states laws typically
require companies making small offerings to register their
offerings before they can be sold in a particular state. The
laws also license brokerage firms, their brokers, and investment
adviser representatives. The term is said to of originated
in the early 1900s by a Supreme Court Justice who wanted to
protect investors from speculative ventures that had, "as
much value as a patch of blue sky."
Board of Governors: The controlling
body of NASD
Board of Trustees: A board
acting as a trustee of a trust or as advisors to the trustee
depending upon the language of the trust indenture. Also see
Committee of Advisors.
Boiler Room: A base of operations
from which con artists launch fraudulent telemarketing scams,
schemes and swindles. These may be a rented office, a basement
in a home or any other place where the perpetrator can establish
a bank of telephones and cold callers can operate undisturbed.
They are called boiler rooms because they are a “high
BOM (Branch Office Manager):
Individual who is in charge of a branch office of a brokerage
firm or a bank. BOMs who supervise the activities of at least
three brokers must pass supervisory tests given by the exchanges
and the NASD.
Bond: A certificate of indebtedness
in which the issuer (borrower) promises to pay the bondholder
(creditor) a specified amount of interest for a specified
time period and to repay the debt at maturity. Obligations
that are due in more than one year are classified as bonds
whereas if the debt is for less than one year, it is called
a "note." Bondholders are creditors of the issuer
and they do not have ownership privileges. A bond may be registered
either by issuing certificates in the bondholder's name, book-entry
or in bearer certificates.
Book-Entry Securities: Securities
that are registered to an owner without the issuance of a
physical certificate. Ownership is reflected by an entry in
the issuer's books. This method of registering securities
has grown in popularity because investors need not worry about
the location of their certificates and it requires less paperwork
for a brokerage firm.
Branch Office: Any location
identified by any means to the public or customers as a location
at which an NASD member conducts investment banking or securities
Branch Office Manager (BOM): Individual who is in charge of
a branch office of a brokerage firm or a bank. BOMs who supervise
the activities of at least three brokers must pass supervisory
tests given by the exchanges and the NASD.
Bridge Loan: A short-term
loan that is used just until a person or company can secure
British West Indies (BWI):
In the Caribbean, including the UK-dependent territories of
Anguilla, the British Virgin Islands (BVI), the Cayman Islands,
Montserrat and the Turks and Caicos Islands.
Broker: A person who handles
investors' orders to buy and sell securities. For this service
a commission is usually charged. Brokers specializing in stocks,
bonds, options, or commodities act as an agent.
Broker-Dealer: An individual
or firm in the securities business who acts as a principal
rather than as an agent in a specific transaction. Principles
buy and sell securities for their own account and risk. A
dealer's profit or loss is derived from the difference between
the price he/she pays for the security and the price he/she
receives when selling the security to a customer. Because
most individuals and firms act as both brokers and dealers,
the term broker-dealer is commonly used.
Bucketing: Where, in an attempt
to make a quick profit, a broker confirms an order to a client
without actually executing it. If the eventual price that
the order was executed at was higher than the price available
when the order was submitted, the customer would simply pay
the higher price. On the other hand, if the execution price
were lower than the price available when the order was submitted,
the customer would pay the higher price, and the brokerage
firm would pocket the difference.
Bucket Shop: 1) A brokerage
firm that uses aggressive telephone sales tactics to sell
securities that the brokerage owns and wants to get rid of.
The securities that they sell are typically poor investment
opportunities, almost always penny stocks. 2) A brokerage
firm that engages in “bucketing.”
Bull and Bear Markets: A
bear market is one in which prices are low or declining; a
bull market is one in which prices are high or rising.
Business Conduct Committee:
A committee, organized under the NASD in each of its 13 districts,
that acts as a hearing tribunal for trade practice complaints
made under the Code of Procedure--also called the "District
Business Conduct Committee." The committee ascertains
the facts and, when warranted, imposes discipline. Decisions
may be appealed to the NASD's Board of Governors.
Business Trust: A trust created
for the primary purpose of operating or engaging in a business.
It is a person under the Internal Revenue Code (IRC). It must
have a business purpose and actually function as a business.
Buying On Margin: Buying
securities on credit in an established margin account at a
Bypass Trust: A written agreement
established by parents that allows them to pass their assets
to their children in the event of their death.
questions and suggestions.