This 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.

Call: 1) An option in which the holder has the right to buy a specific number of shares of the underlying security at a specified price within a specified time period. 2) An issuer's right to redeem a bond issue (in full or part) before its maturity date.

Capital Asset: Regarding individuals, any kind of investment. In relation to corporations, besides security investments, it includes fixed assets such as land, buildings, equipment and furniture. Generally, a capital asset can be any item that is not bought or sold in the normal course of business.

Capital Gain: An increase in the value of a capital asset (investment or real estate), higher than the purchase price. The gain is not realized until the asset is sold. A capital gain may be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes. Long-term capital gains are usually taxed at a lower rate than regular income. This is done to encourage entrepreneurship and investment in the economy. Current tax regulations require any gains to be taxed at a rate up to 28%.

Capital Gains Distribution: A distribution of profits derived from the assets within a mutual fund. Mutual funds usually distribute these gains on a quarterly basis to their shareholders. These gains are currently taxable at a rate up to 28%.

Capital Loss: A negative difference between an asset's purchase price and its selling price. Current tax regulations allow capital losses to be offset dollar-for-dollar against capital gains and $3,000 of ordinary income.

Capital Stock: All shares representing ownership in a corporation as authorized by its charter. A corporation's balance sheet normally includes the number and value of the issued shares in the figures for authorized shares.
Caribbean Common Market (CARICOM): Consists of 14 sister-member countries of the Caribbean community. Members include: Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent, Surinam, Trinidad and Tobago. They have set as a goal that in 1997 there will be a single market allowing for the free movement of labor. Conspicuous by their absence are the Cayman Islands and the British Virgin Islands, two major players in international banking and finance.

Cartel: A small group of producers of a good or service who agree to regulate supply in an effort to control or manipulate prices. The best known example of a cartel is probably the Organization of Petroleum Exporting Countries (OPEC).

Cash Account: A brokerage account in which the client pays in full for any purchases. In contrast, in a margin account the broker extends the client credit. Many brokerage clients have both cash and margin accounts. Custodial accounts may not have a margin account.

Central Bank: A bank providing services for the government of a country and major commercial banks. A central bank's main job is implementing monetary policy.

Central Computer Complex: The facility in Trumbull, Connecticut, where The Nasdaq Stock Market's mainframe computers are located. The computer complex is linked to more than 3,400 Nasdaq terminals in securities firms and financial institutions. The system processes more than 1 million transactions per day. Nasdaq is also the only stock market in the world with a fully redundant disaster recovery facility, located in Rockville, Maryland.

Central Registration Depository (CRD): A computerized system in which NASD maintains the employment, qualification, and disciplinary histories of more then 400,000 securities industry professionals who deal with the public including most brokers, some investment advisers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You'll also find information about the brokers' educational backgrounds and where they've worked before their current jobs. You will probably find that your state securities regulator provides more information from the CRD than the NASD will release, especially when it comes to investor complaints. See also Form ADV and IARD.

Certificate: The actual paper evidencing ownership of a security. The certificate states the issuer's name, amount of shares, shareholder's rights, the issue's par value (or declaration of no par value) and any responsibilities of the issuer. Certificates may be issued in registered or bearer form.

Certificate Of Deposit (CD): A money market instrument issued by banks that has a set interest rate and maturity date. CDs may be issued for as low as $100. CDs that are in denominations of $100,000 or more are called "jumbo CDs." Maturities can range from a few weeks to several years.

Certified Financial Planner: CFP, Certified Financial Planner, and Certification Marks are owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements. Those wanting to become a CFP professional must take extensive exams in the areas of financial planning, taxes, insurance, estate planning, retirement, among others. Attaining the CFP designation takes experience and a lot of hard work, and CFP professionals must also complete continuing education programs each year to maintain their certification status.

Certified Public Accountant: A designation by the American Institute of Certified Public Accountants those who pass an exam and meet work-experience requirements. For the most part the accounting industry is self-regulated. The CPA is a designation designed to help ensure professional standards for the industry are enforced. Other countries have certifications equivalent to the CPA for their region. For example, in Canada, accountants similar to the CPA are called Chartered Accountants (CA).

Chapter 7: A bankruptcy proceeding where a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company's assets and the money is used to pay off debt.

Chapter 11: A bankruptcy proceeding that involves a reorganization of a debtor's business affairs and assets, and is generally filed by corporations which require time to restructure their debts. Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations under its plan of reorganization.

Charity Room: A boiler room variation in which the telemarketers use high pressure sales tactics to persuade victims to contribute to charitable organizations. A bona fide charity may receive some nominal share of the proceeds, but in many cases, it is an outright fraud.

Chicago Board Options Exchange (CBOE): Exchange in which options are traded.

Chicago Board Of Trade (CBT): Exchange in which futures--such as corn, gold, silver and wheat--and futures options are traded.

Chicago Mercantile Exchange: Exchange in which foreign currency futures and futures options are traded. Amongst others, some examples are the British pound, Canadian dollar, French franc, and the Japanese yen. In addition, futures and futures options are traded on such vehicles as indexes, live cattle, pork bellies and lumber.

Chinese Wall: A term used to describe procedures enforced within a securities firm that separate the firm's departments to restrict access to non-public, material information. The procedures help NASD members avoid the illegal use "inside" information. Outside the securities industry, this term can refer to any device or strategy adopted to establish separation.

Churning: Also known as “excessive trading.” Like “Unsuitability,” churning allegations often form the basis for an arbitration award, and it is an issue that any investigator handling cases involving securities issues must understand. A broker “churns” an account when he engages in excessive trading for the purpose of increasing his or her commissions, rather than to further the customer's investment goals.
For example, Thelma Lou is thirty year old actress with an annual income of approximately $350,000. She entrusted $500,000 to Joe Broker who engaged in some sort of stock transaction virtually every day. Although there was no fraud, Thelma Lou approved every trade, and she realized a significant return on her investment, she would have made as much or more had the money been invested and left alone. The excessive trading served only to enrich the broker, so Thelma Lou would almost undoubtedly prevail if she pursued an arbitration award.

Claim: A demand for money or other relief.

Clearance: The conclusion of an exchange of securities

Closer: This sales term is usually applied to the experienced telemarketer who specializes in making the final pitches necessary to persuade reluctant investors who are identified by cold callers as having potential.

Closing Ratio: The ratio of closed contacts to those who were prospected by cold callers expressed as a percentage. An effective boiler room operation may persuade 5% to 10% of cold calls depending upon the attractiveness of the pitch, the talent of the closer and the degree of pressure applied.

Cold Calling: Telephone calls made to unknown individuals whose names appear on “mooch lists” by boiler room telemarketers or “lead lists” by broker dealer account executives prospecting for potential “clients.”

Collateral: Assets, such as securities, that are pledged to a lender by a borrower. The assets secure the loan until the borrower repays it. In the event the borrower defaults, the lender has the legal right to sell the assets to pay off the loan.

Comfort Letter: An accounting firm's statement provided to a company preparing to go public. The letter indicates the accountants' comfort that unaudited financial data in the company's prospectus consistently follow generally accepted accounting principles, and no material changes have occurred since the report was prepared.

Commercial Paper: Debt instruments that are issued by established corporations to meet short term financing needs. Such instruments are unsecured and have maturities ranging from 2 to 270 days. Commercial paper is rated by Standard & Poor's and Moody's.

Commissions: Fees paid to a broker for executing a trade based on the number of shares traded or the dollar amount of the trade.

Committee of Advisors: Provides non-binding advice to the trustee and trust protector. Friendly towards settlor but must still maintain independence.

Committee of Trust Protectors: An alternative to utilizing merely one trust protector. Friendly towards settlor, but must remain independent.

Committee on Uniform Security Identification Procedures (CUSIP) number: A unique nine-character alpha/numeric code appearing on the face of each stock certificate that is assigned to a security by Standard & Poor's Corporation. The number is used to expedite clearance and settlement.

Commodities: Bulk products, such as metals, grains, and foods, that are traded on a commodities exchange.

Common Stock: Securities which represent an ownership interest in a public corporation. Owners are entitled to vote on the selection of directors and other important matters as well as to receive dividends when they are declared. If a corporation is liquidated, the claims of secured and unsecured creditors, bondholders and owners of preferred stock have priority over the claims of common stockholders

Community Property: A special ownership for married couples under laws of community property. Not all states have community property laws. Each has equal rights to any appreciation or income derived from those assets.

Companies Act or Ordinance: Legislation enacted by a tax haven to provide for the incorporation, registration and operation of international business companies (IBCs). More commonly found in the Caribbean tax havens. For a typical example, read the Bahamas' International Business Company Act of 1989.

Compliance Departments: Departments set up in all organized stock markets to oversee market activity and make sure that trading complies with Securities and exchange Commission and other Exchange regulation.

Confirmation: Formal memorandum from a broker to a client giving details of securities transaction. When a broker acts as a dealer, the confirmation must disclose that fact to a customer.

Consumer Price Index (CPI): A measure of price changes in consumer goods--also known as the "cost of living index." The index is calculated monthly by the US Bureau of Labor Statistics. Some CPI components are food, housing costs and transportation.

Controlled Foreign Corporation (CFC): An offshore company which, because of ownership or voting control of U.S. persons, is treated by the IRS as a U.S. tax reporting entity. IRC 951 and 957 collectively define the CFC as one in which a U.S. person owns 10 percent or more of a foreign corporation or in which 50 percent or more of the total voting stock is owned by U.S. shareholders collectively or 10 percent or more of the voting control is owned by U.S. persons.

Convertible Bond: A bond that can be exchanged at the option of the holder into preferred or common stock at a preset ratio.

Cook the Books: A fraudulent activity done by some corporations to falsify their financial statements.

Cooling Off Period: The period after a company's prospectus has been filed with the Securities and Exchange Commission and before offering is made to the public.

Corporate Bond: Debt instrument issued by a corporation. In contrast to most municipal and government bonds, which are not traded on major exchanges and are tax-free, corporate bonds are traded on major exchanges and the interest paid to the investor is taxable.

Corporation: A legal entity chartered by a state or the federal government and is separate and distinct from the persons who own it. A corporation is considered an artificial person--it may own property, incur debts, sue or be sued. Some distinguishing features of corporations are: * Ownership is held by stockholders who have limited liability--that is, they can only lose what they invest. * Transfer of ownership is accomplished through the sale of stock shares. * Perpetual existence (unless ended through bankruptcy, a merger, tender or takeover).

Coupon Bond: A bond in a form that has interest coupons attached. The coupons are clipped as they come due (usually semiannually) and are submitted by the bondholder for payment of interest.

CRD (Central Registration Depository): A computerized system in which NASD maintains the employment, qualification, and disciplinary histories of more then 400,000 securities industry professionals who deal with the public including most brokers, some investment advisers, their representatives, and the firms they work for. For instance, you can find out if brokers are properly licensed in your state and if they have had run-ins with regulators or received serious complaints from investors. You'll also find information about the brokers' educational backgrounds and where they've worked before their current jobs. You will probably find that your state securities regulator provides more information from the CRD than the NASD will release, especially when it comes to investor complaints. See also Form ADV and IARD.

Creator: A person who creates a trust. Also see settlor and grantor.

Customer Service Department: A separate division in most telemarketing companies whose sole responsibility is to handle customer complaints, placate victims and persuade them to continue to be victimized.
Current Account: An offshore, personal savings or checking account.

Current Assets: Corporate assets that are expected to be converted to cash within twelve months. These assets include cash, accounts receivable, marketable securities and inventories.

Current Liabilities: Debt or other obligations that are due within twelve months.

CUSIP (Committee on Uniform Security Identification Procedures) number: A unique nine-character alpha/numeric code appearing on the face of each stock certificate that is assigned to a security by Standard & Poor's Corporation. The number is used to expedite clearance and settlement.

Custodial Account: An account opened on the behalf of a minor by an adult who acts as custodian. The custodian is usually one of the child's parents--both parents cannot be custodian. This type of account is opened because minors cannot enter into contracts. Thus, they cannot make securities transactions for themselves. Any assets placed into a custodial account are irrevocable. Once the minor is of majority (usually 18, but some states are 21), they may do what they please with the assets.

Custodian: A financial institution, such as a brokerage firm, or a bank that holds stock certificates and other assets on the behalf of a mutual fund, corporation or individual. An individual may also act as a custodian in the case of an account for an minor.
Custodian Trustee. A trustee that holds the trust assets in his or her name.

Customer Agreement: Document filled out by a broker that details vital facts about a new client's financial circumstances and investment objectives. The representations the customer makes regarding his objectives and personal experience with regard to securities can be critical in the event of an arbitration claim. THIS IS NOT THE PLACE TO OVERSTATE KNOWLEDGE AND EXPERIENCE.

Customer Protection Rule: An SEC rule that requires broker/dealers to establish separate reserve accounts into which customer credit balances are maintained. The rule prohibits a firm from using customer balances to finance its own trading. The rule also requires firms to gain possession of customers' fully paid and excess margin securities promptly, and to segregate them properly.

I welcome your comments, questions and suggestions.