Kiting is a type of financial fraud used to illegally obtain additional credit. It involves creating false financial documents and taking advantage of the post-dating process of financial instruments, such as checks, to increase the amount of credit the perpetrator can access. The term often refers to check kiting, or the practice of depositing checks from one account into another while allowing the money to accumulate before it is withdrawn.
In the securities industry, kiting is generally used to refer to the manipulation of securities to gain extra credit. In this type of fraud, firms engage in the practice of early and delayed delivery; this process involves failing to obtain securities in a timely manner and instead, manipulating the buying and selling process to obtain more credit than what is actually available.
For example, the firm may purchase securities the day before settlement, then fail to make payment for the securities by the settlement date. This would allow the securities firm to receive credit, but payment for the securities would not be made until a much later date.
Check kiting is the illegal practice of writing bad checks and taking advantage of "float timing," or the short delay that exists between deposit and check clearance. By making money transfers between multiple bank accounts, known as "verbal float," fraudsters are able to temporarily inflate the funds available in accounts, thus allowing them to write bad checks against them. Whereas, "instrument float" involves using a combination of checks and deposits to create float and inflated account balances.
Both check kiting and securities kiting are illegal, and can have far-reaching implications for financial institutions and consumers alike. Banks and retailers who are targeted through check kiting scams can suffer significant losses and fraudulent activity can severely damage the reputation of the financial institution, making it difficult to restore public trust. Customers targeted by check kiting schemes may also be held liable for their losses, as they are often unwitting participants in the fraud.
Security kiting can be difficult to detect, as the perpetrator often uses multiple accounts and transactions and is able to take advantage of timing discrepancies to evade detection. The best way to detect and prevent security kiting is through rigorous monitoring and reporting of all transactions. Banks and retailers should also remain vigilant and maintain stringent accounting practices to prevent being exposed to kiting schemes.
In the securities industry, kiting is generally used to refer to the manipulation of securities to gain extra credit. In this type of fraud, firms engage in the practice of early and delayed delivery; this process involves failing to obtain securities in a timely manner and instead, manipulating the buying and selling process to obtain more credit than what is actually available.
For example, the firm may purchase securities the day before settlement, then fail to make payment for the securities by the settlement date. This would allow the securities firm to receive credit, but payment for the securities would not be made until a much later date.
Check kiting is the illegal practice of writing bad checks and taking advantage of "float timing," or the short delay that exists between deposit and check clearance. By making money transfers between multiple bank accounts, known as "verbal float," fraudsters are able to temporarily inflate the funds available in accounts, thus allowing them to write bad checks against them. Whereas, "instrument float" involves using a combination of checks and deposits to create float and inflated account balances.
Both check kiting and securities kiting are illegal, and can have far-reaching implications for financial institutions and consumers alike. Banks and retailers who are targeted through check kiting scams can suffer significant losses and fraudulent activity can severely damage the reputation of the financial institution, making it difficult to restore public trust. Customers targeted by check kiting schemes may also be held liable for their losses, as they are often unwitting participants in the fraud.
Security kiting can be difficult to detect, as the perpetrator often uses multiple accounts and transactions and is able to take advantage of timing discrepancies to evade detection. The best way to detect and prevent security kiting is through rigorous monitoring and reporting of all transactions. Banks and retailers should also remain vigilant and maintain stringent accounting practices to prevent being exposed to kiting schemes.