Glossary

Financial fraud has several vocabularies running at once. Fraudsters have theirs, prosecutors have another, defense attorneys a third, and forensic accountants, receivers, and regulators each bring their own. This glossary collects 157 of them in one place, in plain language.

It's the reference we use making the show. If a term comes up in an episode and you want to know precisely what it means, it should be here.

Acceptance of responsibility Defense

A sentencing guidelines reduction available to defendants who genuinely admit their conduct, usually through a timely guilty plea.

Accredited investor Securities Law

An investor meeting income, net worth, or professional criteria, permitted to participate in certain private offerings. Schemes often falsely certify investors as accredited to fit within an exemption.

ACFE Accounting & Finance

Association of Certified Fraud Examiners, the professional body issuing the CFE credential and publisher of research on occupational fraud.

Administrative proceeding Regulatory

An SEC enforcement action heard within the agency rather than in federal court, often used for registration-related sanctions and industry bars.

Advance fee fraud Scheme Mechanics

Requiring an upfront payment — for taxes, fees, bonding, or release of funds — before a promised larger payout that never arrives. Also appears at the collapse stage of Ponzi schemes, when victims are asked to pay to recover their money.

Affinity fraud Scheme Mechanics

A fraud targeting members of an identifiable group — a congregation, an ethnic community, a profession, a military base — where the perpetrator is a member or feigns membership. Shared identity substitutes for due diligence, and victims often vouch for the scheme to one another.

Affinity marketer / recruiter Scheme Mechanics

A person, sometimes an unwitting victim, who brings new investors into a scheme, often paid by commission or by preferential returns.

Aggravated identity theft Criminal Charges

18 U.S.C. § 1028A. Using another person's means of identification during certain felonies. Carries a mandatory consecutive two-year term.

Allocution Court & Procedure

A defendant's statement to the court at sentencing, and separately, the on-record admission of conduct when pleading guilty.

AML Accounting & Finance

Anti-Money Laundering. The framework of laws and controls designed to detect and prevent laundering of criminal proceeds.

Arraignment Court & Procedure

The hearing at which a defendant is formally advised of charges and enters a plea.

ASIC Regulatory

Australian Securities and Investments Commission, Australia's corporate and financial services regulator.

Asset freeze Regulatory

An emergency court order preventing dissipation of assets, usually sought at the outset of an SEC action to preserve funds for victims.

Attorney-client privilege Defense

Protection for confidential communications made for the purpose of obtaining legal advice.

Audit Accounting & Finance

Examination of financial statements to express an opinion on their fairness. Many schemes used no auditor, a tiny unknown firm, or a fabricated one.

Bank fraud Criminal Charges

18 U.S.C. § 1344. Defrauding a financial institution or obtaining its funds by false pretenses. Carries a ten-year statute of limitations, longer than most fraud offenses.

Bank Secrecy Act Investigation

Federal statute requiring financial institutions to keep records and file reports, including CTRs and SARs, that assist in detecting financial crime.

Bar order Court & Procedure

A court order barring further litigation against settling parties, typically entered in receiverships to finalize settlements.

Beneficial owner Accounting & Finance

The person who ultimately owns or controls an asset or entity, as distinct from the registered holder.

Blockchain analysis Crypto & Modern

Tracing cryptocurrency transactions across public ledgers to identify flows and, where possible, attribute addresses to parties.

Blue sky laws Regulatory

State securities statutes, predating federal regulation, requiring registration and prohibiting fraud. Named for schemes said to be backed by nothing but blue sky.

Brady material Defense

Evidence favorable to the accused that the prosecution must disclose, under Brady v. Maryland (1963).

Broker-dealer Securities Law

A person or firm in the business of effecting securities transactions. Registration with the SEC and FINRA membership are generally required. Unregistered broker activity is a frequent companion charge.

BrokerCheck Regulatory

FINRA's free public database of registration status, employment history, and disciplinary records for brokers and firms. A basic and widely skipped due diligence step.

Cease and desist order Regulatory

An order directing a person to stop violating securities laws. Available to the SEC and to state regulators.

CFE Accounting & Finance

Certified Fraud Examiner, a credential issued by the Association of Certified Fraud Examiners covering fraud prevention, detection, and investigation.

CFTC Regulatory

Commodity Futures Trading Commission. Civil regulator of derivatives, futures, and much commodity activity. Frequently the regulator in forex, precious metals, and some cryptocurrency fraud.

Churning Securities Law

Excessive trading in a customer account to generate commissions rather than to serve the customer.

Clawback Investigation

An action to recover money already paid out — typically against net winners, feeder funds, or recipients of fraudulent transfers — so it can be redistributed to victims.

Cloud mining Crypto & Modern

Selling contracts for shares of remote cryptocurrency mining capacity. Repeatedly used as a Ponzi wrapper where little or no mining occurs.

Collapse trigger Scheme Mechanics

The event that ends a scheme — a market downturn, a large redemption request, a regulatory exam, a defecting insider, or press attention. Most Ponzi schemes are not detected so much as they run out of new money.

Commingling Securities Law

Mixing investor funds with operating or personal funds so that money cannot be traced to its source. Nearly universal in Ponzi schemes and central to proving them.

Complaint Court & Procedure

In criminal practice, a sworn charging document supporting arrest. In civil practice, the document initiating a lawsuit, as in an SEC complaint.

Consent judgment Court & Procedure

A resolution of an SEC action in which the defendant agrees to a judgment, commonly without admitting or denying the allegations.

Conspiracy Criminal Charges

18 U.S.C. § 371 or § 1349. An agreement between two or more people to commit an offense. Fraud conspiracy under § 1349 does not require proof of an overt act.

Cooperating witness Investigation

A participant who provides evidence against others, typically pursuant to a plea agreement, in exchange for potential sentencing consideration.

CPA Accounting & Finance

Certified Public Accountant, a state-licensed accounting credential.

Crime-fraud exception Defense

An exception removing privilege where legal advice was sought to further an ongoing or intended crime or fraud.

CTR Investigation

Currency Transaction Report, filed for cash transactions over $10,000. Attempts to avoid triggering a CTR constitute structuring.

Custody Accounting & Finance

Holding client assets. Advisers with custody face heightened requirements including surprise examinations. Self-custody is a persistent risk indicator.

Detention hearing Court & Procedure

A hearing on whether a defendant is released or held pending trial, weighing flight risk and danger to the community.

Disgorgement Regulatory

Repayment of ill-gotten gains. Remedial rather than punitive in theory, and distinct from civil penalties.

Double pledging Accounting & Finance

Pledging the same collateral to multiple lenders or investors, each believing they hold an exclusive claim.

Due diligence Accounting & Finance

Investigation of an investment before committing funds — verifying registration, custody, audits, and the identity and history of principals.

EDGAR Regulatory

The SEC's public filing system, containing registration statements, periodic reports, and Form D notices.

Exit scam Crypto & Modern

Operators of a platform disappearing with customer assets, typically after a period of apparently normal operation.

Factoring Accounting & Finance

Selling receivables at a discount for immediate cash. Fraud arises when the receivables are fabricated or pledged more than once.

Factual basis / statement of facts Court & Procedure

The agreed recitation of conduct accompanying a guilty plea. Because the defendant admits it under oath, it carries evidentiary weight that an indictment does not.

Fair Fund Regulatory

A fund established under Sarbanes-Oxley combining penalties and disgorgement for distribution to harmed investors.

False statements Criminal Charges

18 U.S.C. § 1001. Materially false statements to a federal agency, including to investigating agents. A standalone felony regardless of the underlying conduct.

FBI Investigation

Federal Bureau of Investigation. White-collar squads investigate securities and investment fraud, often jointly with IRS-CI, the SEC, and the Postal Inspection Service.

Feeder fund Scheme Mechanics

A fund that pools client money and channels it into a larger fund. In the Madoff case, feeder funds supplied much of the capital and insulated the operator from direct investor contact.

Fictitious trading Scheme Mechanics

Account statements, confirmations, or trade blotters reflecting transactions that never occurred, generated to support claimed returns.

Fiduciary duty Securities Law

The obligation to act in a client's best interest, including duties of loyalty and care. Its breach is central to many adviser fraud cases.

Fifth Amendment Defense

The constitutional privilege against compelled self-incrimination. Invoking it in a civil case may permit an adverse inference, unlike in a criminal trial.

FINRA Regulatory

Financial Industry Regulatory Authority. A self-regulatory organization overseeing broker-dealers and their representatives. Operates BrokerCheck.

Forensic accounting Investigation

Reconstructing financial records for use in litigation or prosecution — tracing funds, identifying misappropriation, and quantifying loss.

Forfeiture Court & Procedure

Government seizure of property derived from or used in an offense. Distinct from restitution and governed by separate rules.

Form ADV Regulatory

The registration and disclosure form filed by investment advisers, including a plain-language brochure describing services, fees, conflicts, and disciplinary history. Publicly available.

Form D Securities Law

A brief notice filed with the SEC for offerings claiming a Regulation D exemption. Its presence indicates a filing was made, not that an offering is legitimate.

Fraud triangle Accounting & Finance

A model attributing fraud to three conditions: pressure, opportunity, and rationalization. Attributed to criminologist Donald Cressey.

Fraudulent transfer Investigation

A transfer made with intent to hinder creditors, or for less than reasonably equivalent value while insolvent. The legal basis for most clawback actions.

Free-look period Scheme Mechanics

An early window in which a Ponzi operator readily honors withdrawal requests to build confidence. Early redemptions are cheap and generate testimonials that recruit far more money than they cost.

Giglio material Defense

Impeachment evidence about government witnesses, including cooperation agreements and benefits received, which must be disclosed.

Going concern Accounting & Finance

An auditor's assessment of whether an entity can continue operating. A going-concern qualification signals substantial doubt.

Good faith defense Defense

The argument that a defendant genuinely believed their representations were true, negating intent to defraud. Central to many fraud trials.

Grand jury Investigation

A body that reviews evidence and decides whether to return an indictment. Proceedings are secret and the standard is probable cause, not proof beyond a reasonable doubt.

Guaranteed return Scheme Mechanics

A promise of fixed profit regardless of market conditions. In securities, guaranteed returns are effectively impossible above risk-free rates and are among the most reliable indicators of fraud.

Howey test Securities Law

The test from SEC v. W.J. Howey Co. (1946) for whether an arrangement is an investment contract and therefore a security: an investment of money in a common enterprise with an expectation of profits derived from the efforts of others. Central to whether an unconventional asset falls under SEC jurisdiction.

HYIP Crypto & Modern

High-Yield Investment Program. Online programs promising implausible returns; effectively all are Ponzi schemes.

IAPD Regulatory

Investment Adviser Public Disclosure, the SEC's public database of registered investment advisers and their Form ADV filings.

Independent custodian Accounting & Finance

A third party holding client assets and issuing statements directly to clients. Statements produced by the adviser rather than a custodian are a hallmark of fictitious accounts.

Indictment Court & Procedure

A formal charging document returned by a grand jury. An allegation only; the defendant is presumed innocent.

Information Court & Procedure

A charging document filed by a prosecutor without a grand jury, typically with the defendant's consent as part of a plea agreement. Its presence often signals a negotiated resolution.

Internal controls Accounting & Finance

Procedures designed to safeguard assets and ensure reliable reporting. Their absence — particularly a lack of separation of duties — is a precondition for most long-running frauds.

Investment adviser Securities Law

A person or firm compensated for advising others about securities. Advisers owe fiduciary duties and register with the SEC or a state, depending on assets under management.

Investment contract Securities Law

A category of security defined by the Howey test rather than by form. Cattle interests, mobile home portfolios, film financing, and cryptocurrency offerings have all been analyzed as investment contracts.

IRS-CI Investigation

Internal Revenue Service Criminal Investigation, the IRS's law enforcement arm. Its special agents are financial investigators, and IRS-CI is frequently the lead agency in Ponzi cases because the money trail is the case.

KYC Accounting & Finance

Know Your Customer. Requirements that financial institutions verify customer identity and understand the nature of their activity.

Litigation release Regulatory

An SEC publication summarizing a civil action filed in federal court. A primary source for the allegations in a case.

Loss amount Court & Procedure

The financial harm attributed to an offense, the single most influential factor in federal fraud sentencing. Whether loss means gross investment, net loss, or intended loss is often heavily contested.

Lulling payment Scheme Mechanics

A payment or account statement made to keep an investor from asking questions, withdrawing, or reporting. Lulling conduct can extend the statute of limitations and is often charged as a separate act of fraud.

Mail fraud Criminal Charges

18 U.S.C. § 1341. A scheme to defraud using the mails or a private carrier. Structurally parallel to wire fraud.

Mark to market Accounting & Finance

Valuing assets at current market prices. Illiquid or fabricated assets cannot be marked reliably, which is part of their appeal to fraudsters.

Materiality Securities Law

Whether a reasonable investor would consider information important to an investment decision. Misstatements must be material to be actionable.

Merchant cash advance Accounting & Finance

A financing arrangement advancing funds against future receivables. Legitimate as an industry and repeatedly used as a fraud wrapper.

Misappropriation Securities Law

Taking client or investor funds for a use other than the one represented, including personal expenses.

Mixer / tumbler Crypto & Modern

A service combining cryptocurrency from many sources to obscure transaction history. Frequently used to launder proceeds.

Money laundering Criminal Charges

18 U.S.C. §§ 1956 and 1957. Conducting financial transactions with criminally derived proceeds to conceal their source, or transacting over $10,000 in such proceeds. Routinely charged alongside fraud.

Motion in limine Defense

A pretrial motion to exclude or admit specific evidence at trial.

Motion to dismiss Defense

A request that the court dismiss charges or claims, for legal insufficiency or other grounds.

NASAA Regulatory

North American Securities Administrators Association, the organization of state and provincial securities regulators.

NAV Accounting & Finance

Net asset value. In fraudulent funds, reported NAV is frequently a manufactured figure rather than a calculated one.

Neither admit nor deny Court & Procedure

The standard settlement posture in SEC civil actions, permitting resolution without an admission of wrongdoing.

Net winner / net loser Investigation

In a Ponzi collapse, an investor who withdrew more than they contributed is a net winner; one who withdrew less is a net loser. Receivers frequently sue net winners to recover the excess for distribution.

Nolo contendere Court & Procedure

A no-contest plea, accepting punishment without admitting guilt. Rare in federal court and generally requiring court approval.

Nominee Accounting & Finance

A person or entity holding property on another's behalf to conceal true ownership.

Obstruction of justice Criminal Charges

Interfering with an investigation or proceeding — destroying records, lying to investigators, tampering with witnesses. Frequently added when a subject reacts badly to being investigated.

Occupational fraud Accounting & Finance

Fraud committed by employees against their employer, typically categorized as asset misappropriation, corruption, or financial statement fraud.

Offering fraud Scheme Mechanics

Raising investor money through material misrepresentations or omissions about a specific investment. Distinct from a Ponzi scheme: money may never be recycled between investors at all. A fraud can be an offering fraud without being a Ponzi.

Parallel proceedings Defense

Simultaneous civil and criminal actions arising from the same conduct — commonly an SEC case and a DOJ prosecution — raising strategic problems around testimony and discovery.

Pig butchering Crypto & Modern

A long-form fraud combining social or romantic manipulation with fake investment platforms, in which a victim is cultivated over weeks before being induced to invest and then to invest more.

Plea agreement Court & Procedure

A negotiated resolution in which a defendant pleads guilty, usually in exchange for charge or sentencing concessions. Typically includes a factual basis — an admitted account of the conduct, and a valuable primary source.

Ponzi scheme Scheme Mechanics

An investment fraud in which returns to existing investors are paid from money contributed by new investors rather than from genuine profit. It requires continuous recruitment to survive and collapses when new money slows. Named for Charles Ponzi, whose 1920 postal reply coupon scheme drew national attention, though the structure predates him.

Presentence report Court & Procedure

A probation officer's report analyzing the offense, the defendant's history, and the applicable guidelines. Influential at sentencing and generally not public.

Prime bank scheme Scheme Mechanics

A fraud premised on secret, high-yield trading programs supposedly available only to elite banks or a select few investors. No such instruments exist. Hallmarks include nondisclosure demands and claims of endorsement by the Federal Reserve, IMF, or World Bank.

Proffer Investigation

A meeting in which a subject provides information to prosecutors under a limited-use agreement, often as a step toward cooperation.

Proffer of evidence Court & Procedure

A description of evidence a party expects to introduce, offered to the court.

Promissory note Accounting & Finance

A written promise to repay with interest. Widely used in investment fraud because it sounds like debt rather than a security, though notes are generally securities.

Pyramid scheme Scheme Mechanics

A recruitment-based fraud in which participants pay to join and earn primarily by enrolling others, rather than from sales of any product. Distinguished from a Ponzi scheme in that participants know they are recruiting; in a Ponzi, investors typically believe a real investment exists.

Queen for a day Investigation

Informal term for a proffer session, referring to the limited immunity that attaches to statements made during it.

Rate of return Accounting & Finance

Gain or loss relative to investment. Consistently high returns with low volatility, across differing market conditions, are among the strongest fraud indicators.

Receiver Court & Procedure

A court-appointed officer who takes control of an entity's assets, marshals them, and distributes them to victims. Common in SEC actions.

Receivership estate Court & Procedure

The pool of assets under a receiver's control, from which distributions are made after administrative costs.

Recovery room scam Scheme Mechanics

A follow-on fraud targeting known victims of a prior fraud, offering to recover their losses for a fee. Victim lists circulate among fraudsters, making prior victims disproportionately likely to be targeted again.

Red flag Accounting & Finance

An indicator warranting further inquiry — guaranteed returns, unregistered sellers, self-generated statements, pressure to reinvest, complexity presented as proprietary secrecy.

Registration Securities Law

The requirement that securities offerings be registered with the SEC unless an exemption applies. Unregistered offerings are a common charge alongside fraud.

Regulation D Securities Law

SEC rules providing exemptions from registration for certain private offerings. Rule 506 is the most used. Fraudsters frequently claim a Reg D exemption while failing to meet its conditions.

Reliance on counsel Defense

A defense asserting that conduct followed advice of counsel given full disclosure. Typically waives privilege over the relevant advice.

Restitution Court & Procedure

A court order requiring a defendant to repay victims. Often ordered in amounts far exceeding what will ever be collected.

Rising tide / net investment method Court & Procedure

Competing methods for allocating recovered funds among Ponzi victims. The net investment method compensates based on money in minus money out and is the most commonly approved.

Robbing Peter to pay Paul Scheme Mechanics

Colloquial description of the Ponzi mechanism: satisfying one investor's claim with another investor's principal.

Round-tripping Scheme Mechanics

Moving funds through a circle of accounts or entities to create the appearance of revenue, sales, or investment activity.

Rug pull Crypto & Modern

A cryptocurrency fraud in which developers abandon a project and abscond with investor funds, often after removing liquidity.

Rule 10b-5 Securities Law

The principal SEC antifraud rule, prohibiting untrue statements of material fact, omissions of material fact, and schemes to defraud in connection with the purchase or sale of securities.

Rule 35 / 5K1.1 Court & Procedure

Mechanisms for reducing a sentence based on substantial assistance to the government — § 5K1.1 before sentencing, Rule 35(b) after.

Safety valve Defense

A statutory provision permitting sentencing below a mandatory minimum for certain defendants meeting specified criteria.

SAR Investigation

Suspicious Activity Report. A confidential filing by a financial institution reporting potentially suspicious transactions. SARs are not public and often initiate investigations.

Scienter Securities Law

The mental state required for many fraud claims — intent to deceive, or in most circuits, recklessness. A central contested issue in securities fraud litigation.

SEC Regulatory

U.S. Securities and Exchange Commission. Civil regulator of securities markets. It can sue and seek penalties, disgorgement, and injunctions, but cannot bring criminal charges — it refers those to the Department of Justice.

Section 17(a) Securities Law

Antifraud provision of the Securities Act of 1933 addressing fraud in the offer or sale of securities. Certain subsections require a lower state of mind than Rule 10b-5.

Securities fraud Criminal Charges

Criminal violation of securities laws, charged under 18 U.S.C. § 1348 or under the securities statutes with a willfulness requirement.

Security Securities Law

An investment instrument subject to federal securities laws. The statutory definition is broad and includes notes, stock, and investment contracts, among others.

Selling away Securities Law

A registered representative selling investments not offered or approved by their firm. Often how a Ponzi scheme reaches a brokerage's client base.

Sentencing guidelines Court & Procedure

The U.S. Sentencing Guidelines, advisory since United States v. Booker (2005). In fraud cases, loss amount and number of victims drive the calculation.

Separation of duties Accounting & Finance

Dividing authority so that no single person controls a transaction end to end. Ponzi operators typically hold custody, execution, and reporting simultaneously.

Shell company Accounting & Finance

An entity with no meaningful operations, used to hold assets, obscure ownership, or lend an appearance of substance.

SIPC Court & Procedure

Securities Investor Protection Corporation, which oversees liquidation of failed brokerages and provides limited protection for missing customer securities and cash. It does not insure against investment losses or fraud generally.

Smart contract Crypto & Modern

Self-executing code on a blockchain. Fraudulent contracts have been written so that returns are paid from new deposits, making the Ponzi structure literal and auditable.

Staking scheme Crypto & Modern

A fraud framed around cryptocurrency staking rewards, where returns come from new deposits rather than validation rewards.

State securities regulator Regulatory

State-level securities authority, often within the secretary of state's or attorney general's office. Frequently the first responder in local investment fraud.

Statute of limitations Court & Procedure

The deadline for bringing charges or claims. Generally five years for federal fraud, ten where a financial institution is affected.

Structuring Criminal Charges

31 U.S.C. § 5324. Breaking cash transactions into amounts under $10,000 to avoid currency transaction reporting. A crime independent of whether the underlying money is lawful.

Subpoena duces tecum Investigation

A subpoena compelling production of documents, as distinct from testimony.

Substitute assets Court & Procedure

Property forfeited in place of unavailable proceeds, where the original tainted assets have been spent, hidden, or transferred.

Superseding indictment Court & Procedure

A replacement indictment adding charges or defendants, or correcting the original.

Suppression motion Defense

A motion to exclude evidence obtained in violation of constitutional rights.

Tax evasion Criminal Charges

26 U.S.C. § 7201. Willfully evading tax assessment or payment. Ponzi operators frequently fail to report scheme proceeds as income.

Tolling agreement Court & Procedure

An agreement pausing the limitations clock, often entered while an investigation continues.

Tracing Investigation

Following funds through accounts and entities to establish where investor money came from and where it went. The core analytical work of a Ponzi investigation.

Trading suspension Regulatory

An SEC order halting trading in a security, typically for up to ten business days, where there are questions about the adequacy or accuracy of public information.

Trustee Court & Procedure

In bankruptcy, the officer administering the estate. In SIPA liquidations of failed brokerages, the trustee pursues clawbacks and distributes assets.

USPIS Investigation

United States Postal Inspection Service. Jurisdiction over mail fraud; one of the oldest federal law enforcement agencies and a frequent partner in investment fraud cases.

Wallet drainer Crypto & Modern

Malicious code that empties a cryptocurrency wallet once a user authorizes a transaction or connects to a fraudulent site.

White-collar defense Defense

Legal practice representing individuals and entities in financial crime investigations and prosecutions, including asset forfeiture and regulatory proceedings.

Willful blindness Defense

Deliberately avoiding knowledge of a fact. Courts generally permit it to satisfy a knowledge requirement, limiting the good faith defense.

Wire fraud Criminal Charges

18 U.S.C. § 1343. A scheme to defraud using interstate wire communications — calls, emails, transfers. Its breadth makes it the most commonly charged federal fraud offense.

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