What Is Kiting?
Kiting is a clever yet illegal finance ballet where individuals perform a high-wire act with the balance in their bank accounts. It involves the fraudulent use of financial instruments such as checks to perform financial acrobatics, obtaining unauthorized credit and riding the winds of the banking float. The performers in this risky act manipulate the time it takes for checks to clear to create imaginary funds.
Key Takeaways
- High Flying Fraud: Kiting is the art of keeping your financial feet off the ground long enough to use non-existent funds.
- SEC and Its Watchful Eye: In the world of securities, kiting also refers to manipulations by firms ignoring the SEC rules, ensuring they’re always a step ahead in the settlement game.
- Bank vs. Retail Kiting: Whether it’s tricking banks with cross-wind checks or bamboozling retailers with bad checks, kiting can happen just about anywhere cash can be turned into more cash.
Check Kiting Involving Banks
In the realms of banking, kiting could be likened to passing the financial baton in a relay race where the batons are made of rubber checks. Practitioners juggle checks between banks, exploiting the float time to create a mirage of solvency. As modern banking has sprinted towards quicker clearing times, the windows for these fiscal acrobats have narrowed, but the race is far from over.
Retail Kiting
Retail kiting could be seen as the supermarket sweep of banking fraud. Kite flyers write checks to charm retailers into handing over goods or cash back before the checks have a chance to bounce. Like an ill-fated game of musical chairs, the goal here is to keep moving before the music stops and the checks catch up.
Kiting With Securities
In the securities circus, kiting might manifest as juggling undelivered stocks to paint a deceptively rosy picture of a firm’s stock availability. It’s like pulling a rabbit out of a hat, but instead of a rabbit, it’s a stock that might not really be there.
Related Terms
- Float Time: The interval between writing a check and its clearance by the bank, exploited by kiting enthusiasts.
- SEC Rules: Regulations set to ground the high-fliers of securities kiting.
- Financial Fraud: A wider context where kiting performs its deceitful dance.
Further Reading
- “The Art of Deception” by Kevin Mitnick, exploring the human elements in financial frauds.
- “Catch Me If You Can” by Frank W. Abagnale, a real-world walkthrough of check fraud and its implications.
With this guide, one should be equipped not just to understand the windy paths of kiting, but also to appreciate the high-stakes game of cat and mouse it plays with financial systems worldwide. Remember, while the practice might sometimes seem deceptively glamorous, its aftermath is often financially and legally unpalatable.
