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.
10K or Form 10K also
known as an Annual Report: Public companies are required
to file an annual report with the Securities and Exchange
Commission detailing the preceding year's financial results
and plans for the upcoming year. Its regulatory version is
called "Form 10 K." The report contains financial
information concerning a company's assets, liabilities, earnings,
profits, and other year-end statistics. The annual report
is also the most widely-read shareholder communication.
10Q or Form 10K, also known as a Quarterly
Report: A report, required by the SEC of publicly-held
companies, filed quarterly, that provides unaudited financial
information and other selected material.
12B-1 Fees: A fee that is
levied by a mutual fund--usually on a yearly basis and is
usually about 1% or less of a fund's assets. The monies collected
are usually used to pay broker-dealers for servicing accounts.
A mutual fund that charges a 12B-1 fee must disclose this
in writing. Mutual funds that assess 12B-1 fees generally
are no-load funds.
AAA: American Arbitration Association
Absorption Point: During market trading, securities are absorbed
when there are corresponding orders to buy and sell. When
further absorption is impossible without an adjustment in
price, the security has reached its absorption point.
Abusive Tax Shelter: A limited
partnership is classified as an abusive tax shelter by the
Internal Revenue Service when it determines that the limited
partnership is claiming illegal tax deductions. This usually
occurs when the limited partnership values its property beyond
the fair market value. If these tax deductions are denied
by the IRS, investors must pay back taxes, severe penalties
and interest charges.
Abusive Trust: Trust arrangements widely touted in seminars
and on the Internet that purport to reduce or eliminate federal
taxes in ways that are not permitted by law.
Acceleration Clause: A clause
frequently contained within an indenture agreement and other
contracts. It stipulates that if certain default events should
occur, the unpaid balance will become due and payable. Examples
of the type of events are insolvency and failure to meet principal,
interest or sinking fund payments.
Account Executive (AE): An
employee of a brokerage firm who must pass specified tests
and must be registered with the National Association of Securities
Dealers (NASD) before he or she may solicit or accept orders
Accounts Payable: The amount
owed to creditors for goods and services. Analysts look at
a company's relationship of accounts payable to purchases
for indications of sound financial management.
Accounts Receivable: A component
of a corporation's current assets that consists of money owed
to the corporation for services or merchandise it sold to
customers. It is a key factor in examining a corporation's
"liquidity"--its capacity to meet current obligations
without receiving additional revenues.
Accounts Receivable Financing:
If a corporation is in need of short term financing, it may
try to obtain accounts receivable financing. If obtained,
the corporation's accounts receivable is used as collateral
for working capital advances.
Accredited Investor: To qualify
as an accredited investor, an investor must either be: A)
a financial institution; B) an affiliate of the issuer; or
C) an individual with a net worth of at least $1 million or
an annual income of at least $200,000, and the investment
must not account for more than 20% of the investor's worth.
This can be very significant as SEC Regulation D stipulates
that a maximum of 35 non-accredited investors are allowed
to invest money into a Private Placement. An issuer of a private
placement will try to acquire accredited investors to raise
a greater amount of capital than would be possible if only
35 investors of less affluence could contribute.
Accrual Basis: An accounting
method in which income and expense items are credited as they
are incurred or earned, although they may not have been received
or actually paid in cash. Cash Basis accounting is an alternative
Accumulated Dividend: A dividend due to stockholders of cumulative
preferred stock that has not been paid to them. Until the
dividend is paid, it is carried on the corporation's books
as a liability.
Accumulation Account: The sponsor of a Unit Investment Trust
uses an accumulation account to deposit securities it has
acquired. These securities will eventually become part of
the trust itself.
Acid Test Ratio: A ratio that tests a corporation's liquidity.
It is a stricter test than if the current ratio is used. The
ratio is calculated by dividing the sum of cash, cash equivalents,
accounts receivable and notes receivable by the total current
Acquisition: The act of one corporation acquiring a controlling
interest in another corporation. In an "unfriendly"
takeover, the buying corporation may offer incentives to stockholders
such as offering a price well above the current market value.
Across The Board: Movement,
up or down, in the stock market that affects nearly all stocks
in the same direction. That is, nearly all stocks are gainers
ACT (Automated Confirmation Transaction
Service): NASD service that allows parties to a telephone
negotiation to speed the steps involved in completing a transaction.
Acting In Concert: More than one investor who work in concert
to achieve an investment objective. A group of investors who
wish to take over a company may act in concert to buy up the
company's stock. This is legal as long as proper notification
is made to the SEC. However, if the group is acting in concert
to manipulate a stock's price for their own gain, it would
be considered an illegal act.
Actuals: A physical commodity
that, when traded, results in the delivery of the actual commodity
to the buyer when the contract expires. When actuals are traded,
most options and futures contracts are closed out before the
contracts expire. Thus, these transactions tend not to end
in the actual delivery of the commodity. Examples of actuals
are commodities such as oil and gold.
Administrator: In regard
to investments, an administrator is a court-appointed official
empowered to supervise or conduct the court's decisions with
respect to a decedent's estate until it is fully disbursed
to all claimants. An administrator (or "administratix",
if a woman) is appointed when anybody dies either without
a will, without naming an executor, or if the named executor
will not or cannot serve.
ADR (American Depositary Receipt): A U.S. security that is
a repackaged foreign security. A U.S. bank creates an ADR
based on evidence of ownership of a specified number of shares
in the foreign security, while the underlying shares are held
in a depositary in the issuing company's home country. U.S.
investors may buy shares in the foreign company in the form
of an ADR. The certificate, transfer, and settlement practices
for ADRs are identical to those for U.S. securities. (note:
it is depositary, not depository)
Advance Fee Scam: Any of
innumerable schemes that lead the victim to believe that they
will profit dramatically by engaging in some plan that requires
that they pay, or invest, a fee “up front.” In
many cases, the “plan” has some degree of illegality
associated with it – not enough to discourage most people
from participating but just enough to make them reluctant
to file a complaint with the police.
Adverse Trustee: One who
has a substantial, beneficial interest in the trust assets
as well as the income or benefits derived from the trust.
A trustee that is related to the creator by birth, marriage
or in an employer/employee relationship.
Affidavit Of Domicile: A
document that states the residence of the decedent at the
time of death. The form is executed by the legal representative
of an estate and is required when transferring ownership of
a security from a deceased person. The security's transfer
agent requires the affidavit to be notarized and dated within
Affiliated Person: Any persons
who are officers, directors, or owns 10 % or greater of the
voting shares, and in most cases, the aforementioned immediate
family and confidants. These people are in a position to exercise
control on the performance and conduct of a corporation. The
terms "affiliated person" and "control person"
Aftertax Real Rate Of Return:
The amount of money that an investor can keep from an investment's
income and capital gains after it has been adjusted for inflation.
Generally, investors look for an aftertax real rate of return
that will equal if not surpass the rate of inflation.
Agency Transaction: The brokerage
firm's confirmation report to its clients that it executed
an order in the capacity of a broker and charged a commission
for the services rendered. The firm acted as an "agent"
between the customer and the market maker. It is a requirement
to show the commission charged separately on the confirmation
report. The commission cannot be added into the execution
Aggressive Growth Fund: A
Mutual Fund that buys shares in small or speculative growth
companies to achieve maximum capital appreciation.
American Depositary Receipt (ADR):
A U.S. security that is a repackaged foreign security. A U.S.
bank creates an ADR based on evidence of ownership of a specified
number of shares in the foreign security, while the underlying
shares are held in a depositary in the issuing company's home
country. U.S. investors may buy shares in the foreign company
in the form of an ADR. The certificate, transfer, and settlement
practices for ADRs are identical to those for U.S. securities.
(note: it is depositary, not depository)
American Stock Exchange (AMEX or ASE): The second largest
stock exchange in the US is located in the financial district
of New York City at 86 Trinity Place. As a general rule, the
securities traded on the AMEX are those of small to mid-size
corporations. The AMEX also trades options of many NYSE securities
and some OTC securities.
Analyst: Individual in a
brokerage firm, bank trust department, or mutual fund group
who researches corporations, industry groups and the market
to make buy and sell recommendations on specific securities.
A majority of analysts specialize in a particular industry.
However, some analyze corporations that interest them, regardless
of its industry group.
Annual Meeting: A stockholder
meeting that is held yearly. Functions of an annual meeting
are for corporate executives to report on the year's results,
to elect the board of directors, and to transact other business.
The chief executive officer customarily makes a statement
on the outlook for the next year and conducts a question and
answer period. If a shareholder is unable to attend the annual
meeting, the owner may vote for directors and pass on resolutions
through the use of a proxy. Proxy materials are mailed to
all shareholders of record.
Annual Report: A yearly statement
publicly traded and privately held corporations are required
to file. Publicly traded companies are required to file an
annual report with the Securities and Exchange Commission
detailing the preceding year's financial results and plans
for the upcoming year. Its regulatory version is called "Form
10 K." The report contains financial information concerning
a company's assets, liabilities, earnings, profits, and other
year-end statistics. The annual report is also the most widely-read
Annuitant: The beneficiary
or beneficiaries (in a last-to-die arrangement) of an annuity
who receives a stream of payments pursuant to the terms of
the annuity contract.
Annuity: A tax sheltering
vehicle. An unsecured contract between the company and the
annuitant(s) that is used to provide for one's later years.
All income taxes are deferred until maturing of the annuity.
Capital gains and income accumulate tax deferred. Results
in a stream of payments made to the annuitant during his or
her lifetime under the annuity agreement. Taxes are paid on
the income, interest earned and the capital gains but only
to the extent as and when they are received. Currently, there
is no annual limit on purchases, but there is no tax credit
for purchases. An annuity is not an insurance policy.
Answer: A respondent's written
reply to a claim
Antitrust: Federal Antitrust
laws apply to virtually all industries and to every level
of business, including manufacturing, transportation, distribution,
and marketing. They prohibit a variety of practices that restrain
trade. Examples of illegal practices are price-fixing conspiracies,
corporate mergers likely to reduce the competitive vigor of
particular markets, and predatory acts designed to achieve
or maintain monopoly power.
is an asset's increase in value.
Approved List: A list of
investments that a mutual fund or other financial institution
is allowed to invest in. When fiduciary responsibility exists,
the use of an approved list may be statutory.
APT (Asset Protection Trust): A special form of irrevocable
trust, usually created (settled) offshore for the principal
purposes of preserving and protecting part of one's wealth
offshore against creditors. Title to the asset is transferred
to a person named the trustee. Generally used for asset protection
and usually tax neutral. Its ultimate function is to provide
for the beneficiaries of the APT.
APTC (Association of Publicly Traded Companies): This organization,
which is not connected with NASD, provides publicly-traded
companies with a forum for addressing regulatory and legislative
issues that affect them.
Arbitrage: This is the practice
of simultaneously buying and selling the same (or equivalent
securities) to profit from the disparity in their prevailing
prices in separate markets. This activity applies to equivalent
securities trading in different markets, securities with convertible
features, or securities involved in mergers, tender offers,
recapitalizations, or corporate divestitures.
Arbitral Immunity: Arbitrators are protected from suits arising
out of their quasi-judicial conduct in arbitration proceedings.
Arbitration: A method of
settling disputes between brokers and their clients, brokerage
firms and clearing corporations, employees and their firms,
and two brokerage firms. Arbitration has been adopted by all
exchanges and securities associations. A pre-dispute arbitration
clause in a customer's brokerage account agreement is customary
and assures that disputes will be arbitrated by objective
third parties and preclude court cases.
Arbitrator: A private, disinterested
person chosen to decide disputes between parties
Arms Length Transaction: When the buyers and sellers of a
product act independently of each other and have no relationship
to each other. This transaction presumed to be uncompromised
by questionable sales tactics or undisclosed relationships.
Arrearage: Past due obligations
such as interest on bonds or dividends on cumulative preferred
stocks. If a cumulative preferred stock's dividends are in
arrears, common dividends cannot be paid.
Articles Of Incorporation:
Document filed with a US state by corporation founders. Once
the state approves the articles, it will issue a certificate
of incorporation. The articles and the certificate form the
Corporate Charter and gives the corporation its legal existence.
The charter provides such information as the corporation's
name, purpose, amount of authorized shares, and the number
and identity of directors.
Asset: Anything of value
owned or is owed to it by a business, institution, or individual.
Assets may include cash, investments, accounts receivable,
product inventory and other current assets. Patents and goodwill
are called intangible assets.
Asset Management Account (AMA):
An account at a brokerage firm or a bank that combines checkwriting,
debit cards (or credit cards) and brokerage services such
as buying and selling securities. AMAs are convenient because
all financial transactions are listed on one monthly statement.
AMAs are also called central asset accounts and are known
by proprietary names such as PC CASH (First Republic Securities)
and Cash Management Account (Merrill Lynch)
Asset Manager: A person appointed
by a written contract between the IBC (or the exempt company)
or the APT and that person to direct the investment program.
It can be a fully discretionary account or limitations can
be imposed by the contract under the terms of the APT or by
the officers of the IBC. Fees to the asset manager can be
based on performance achieved, trading commissions or a percentage
of the valuation of the estate under his or her management.
Asset Protection Trust (APT):
A special form of irrevocable trust, usually created (settled)
offshore for the principal purposes of preserving and protecting
part of one's wealth offshore against creditors. Title to
the asset is transferred to a person named the trustee. Generally
used for asset protection and usually tax neutral. Its ultimate
function is to provide for the beneficiaries of the APT.
Associated Person: A person
engaged in the investment banking or securities business who
is directly or indirectly controlled by an NASD member, whether
or not this person is registered or exempt from registration
with NASD. Every sole proprietor, partner, officer, director,
or branch manager of any NASD member.
Association of Publicly Traded Companies
(APTC): This organization, which is not connected
with NASD, provides publicly-traded companies with a forum
for addressing regulatory and legislative issues that affect
Auditor's Report: Often called
the accountant's opinion, it is an accounting firm's statement
of a corporation's financial documents. The examination assures
that the corporation is conforming to the normal and generally
accepted practices of accountancy.
Automated Confirmation Transaction
Service (ACT): NASD service that allows parties to
a telephone negotiation to speed the steps involved in completing
Award: The written determination
of the arbitrator in an arbitration proceeding.
questions and suggestions.