1) Securities fraud charge.
2) Cheating customers.
3) First warning signs.
4) SEC is under investigation.
5) Unwilling to investigate affluent Wall Street people.
Section B
Exercise 1. Find words and expressions in paragraph 1 that mean:
a) criminal deception
b) blamed
c) consultancy
d) legal
e) relationship
f) confidence trickster
1) The SEC is under investigation for its failure to investigate the fraud despite the fact that whistle-blowers had alerted it to warning signals.
2) The SEC have always suspected Madoff.
3) Madoffs niece Shana Madoff, a solicitor at Madoffs firm, is married to Eric Swanson, former SEC assistant director in the office of compliance inspections and examinations.
4) Swanson started his romantic relations with his wife-to-be before the compliance team he helped to supervise inquired about Bernard Madoffs securities operations.
Exercise 3. Read paragraph 3 again and put correct verbs into the following sentences:
1) In 2008, Bernard L Madoff Investment Securities had US$700mln of equity capital and _____with 10% of New York Stock Exchange trading volume.
2) A suspiciously small number of employees _____ his investment strategy, a warning sign in itself.
3) Madoff _____ that he had made 10-12% a year on a consistent basis and he was clever enough to reduce the return slightly in bad years to make it seem more plausible.
4) Madoff had seemed _____ the steady returns using what he called the split-strike conversion strategy with options, which is also known as a collar.
5) He out-of-the-money call options and _____ out-of-the-money put options, both on the S&P 100 index, while _____ stocks correlated to that index.
6) The sale of the call options would _____ gains of the underlying stock portfolio beyond a certain level and the purchase of the put options would similarly offset losses.
Exercise 4. Find words or phrases from paragraph 5 to replace the words in italics in the sentences below:
1) The collar strategy he claimed he had chosen was too expensive for a portfolio the size of Madoffs according to the financial investigators.
2) If implemented, it would have led to more volatility than his returns planed.
3) There are a lot of questions with regard to the Madoffs case which need further explanation, including whether he had been front-running, which means using information from market making to trade securities ahead of placing client orders, and whether he had been working alone.
4) One significant issue is how the SEC missed the Madoffs scandal and similar frauds.
5) Boston accountant Harry Markopolos first told the SEC in 1999 that he had an impression that Madoffs business was a Ponzi scheme, he had a small group of investigators working on the case, and kept trying to alert the SEC without success.
6) The SEC is no doubt under-resourced and its staff are not always sufficiently skilled or experienced to recognize a trick, but the legitimate question has arisen whether the SEC has had the will to inquire into high-profile Wall Street figures generally.
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Over to you
Whom do you think the article calls high-profile Wall Street figures? Why do you think the SEC isnt investigating high-profile Wall Street persons? Will there be strict laws introduced against con men like Madoff?
APPENDIX
List of Useful Words and Expressions
Unit I
brokerage house
derivatives market ;
equity market
futures market
investment fund
market capitalization
real estate agency
revenue
thrive ;
| acquisition asset management building society cater to the needs - checking account - demand-deposit account - , interest rate investment advisory services issue shares and bonds liabilities and assets () long-term funds - management buy-outs merger - payment processing savings bank - underwriting , |
allocation of accumulated capital -
checking account -
commercial loan -
interest-bearing loan -
lend ones reputation and credibility to a transaction
mortgage loan -
payment agent -
personal loan -
promissory note -
raise capital -
retail clientele -
safe deposit box
savings account -
source of funding -
underwrite financial transaction -
vault
wire transfer -
Unit II
call option ,
charge a commission on smth ;
company prospectus
gold bullion
hedge fund -
high-net-worth individual
initial public offering (IPO) ,
investment securities
maximize returns
merchant bank
mutual fund ,
originate and distribute security issues
pension fund
secure vault
to raise capital/money ;
underwrite securities
wealth management
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diversified -
interest-bearing loan ,
to merge ,
viable
arrangement .
bank overdraft - ( )
bill discounting -
bonds - ,
collateral ,
coupon -
default on the loan -
deficiency judgment -
demand loan - ()
extend (grand, make) a loan
junk bonds ,
lien on the title to -
maturity - ;
money at call -
pledge
principal - ;
recover money
secured loan -
spread ; ();
yield - ,
Unit III
accounting reporting
double-entry bookkeeping ;
efficiency of business -
financial accountability
financial statement - ;
flourishing trade
fulfill legal duty
impose -
incurred expenses
quantitative reports
regulatory authority -
rely on this information
rules and regulations -
stakeholder ,
strict regulations
audited financial statement - ,
auditor -
book of original entry ()
bookkeeper
bookkeeping
business transaction - (),
cash disbursement - ,
cash receipt - ;
certified accountants - ()
chartered accountant (Br.) - ,
chief accounting officer -
controller (comptroller) ;
earning
expenditures , ,
incorporated or registered firm ()
ledger ,
managerial decision -
public accountant (U.S.) - ,
registered firm ()
trial balance -
to practice accounting -
to draw up a balance -
to post totals into the ledger
to verify the accuracy of operational and financial records
to measure a companys performance
to submit accounting records to regulatory authorities -
to certify accounting records and financial position of a firm -
to file with appropriate regulatory authority ()
to report to the owners on the efficiency of business
accounting period
annual report
balance sheet
bank loans -
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dividend income -
expenses
income statement
inventory ,
liquidity -
losses -
obligations -
outstanding liabilities -
owners equity - ;
performance ;
plant ; ,
profits -
quarterly -
rental charges -
semiannual -
statement of cash flows -
Unit IV
accounting reporting -
assess
business entity -
cash flow - ,
collecting
corporate governance -
cost-efficient - , ,
financial deals and transactions
financial declaration -
income declaration -
relevant information ,
verify ,
auditing organization -
Certified Public Accounting firm
comply with -
draft ,
financial accounting -
fiscal year
General Accepted Accounting Procedure (GAAP)
International Financial Reporting Standards (IFRS)
limited company
mandatory -
publicly traded firms ,
predictive value -
quarterly report
regulatory requirements -
scorecard -
semi-annual report
solvency ,
statutory accounts - ( )
accounting for lean enterprise
comparative analysis -
cost accounting - ,
costs assigned to a product -
external review -
feasibility study - -
forecasting value
lean accounting
managerial accounting -
merger or consolidation report -
resource consumption accounting -
risk management -
sales forecasting report
throughput accounting
transfer pricing - ;
Unit V
banking supervision
convertibility
cover temporary shortfalls in liquidity
credibility
fiscal policy - ()
for commercial reasons
issue banknotes ()
lender of last resort -
monetary expansion
monetary policy
pegging to the gold standard
accountable to government
bank run
capital requirements -
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carry out monetary policy -
draw up guidelines
exhaust assets
fraudulent
overextend oneself ,
policy guidelines
reckless
regulating and supervisory powers
reserve requirement -
Right of issuance
to issue currency
to remit profits
bond issue -
collateral securities -
currency interventions
direct open market operations
direct quantitative restrictions -
encourage economic growth
foreign exchange swaps -
free float interest rates
government bond
interbank market
interest-bearing financial assets
interest-free currency notes
manage money supply -
managed float interest rates
market bubble
monetary authority -
monetary policy tools - -
overheating of economy
private bond
reserve requirements -
setting of money-supply targets -
short-term interest rates -
treasury bill
Unit VI
clearance through customs, customs clearance
clearing institution -
convertible currency
counterparty/bank risk -
delivery risk
fluctuation
foreign exchange risk - ,
interest rate risk -
International Monetary Fund
overall balancing of accounts
payment risk -
bank guarantee
advance payments -
beneficiary ,
collect payment
collection of payment proceeds -
correspondent bank -
customized model
documents against acceptance -
documents against payment -
fiduciary -
firm commitment
imply ,
make a loan (to) , (-)
method of settlement
on behalf of
pay up front
remit payment
risk mitigation -
run risk
ship goods
shipping documents
sue , ,
tracking
trade credit insurance -
verifiable ,
to accept a bill of exchange - ,
acceptance ,
advising bank -
air waybill (see Note 1 in this Unit)
amend -
bill of exchange
bill of lading (see Note 1 in this Unit)
cheque (=check)
confirmed letter of credit -
contract amount -
creditworthiness -
documentary credit -
draft ,
draw (on smb.) ( -)
drawer ,
drawee ,
to fulfill/meet ones obligations
irrevocable letter of credit -
issuing bank -
letter of credit - ,
payee
promulgate
release documents -
sight draft
stipulate ,
GLOSSARY
Unit VII
Arbitrage - simultaneous buying and selling of currency in different markets in order to take advantage of differing prices for the same currency
Balance of payments the difference, over a period of time, between the payments the country makes to other countries for imports and the payments it receives from other countries for exports
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Bid-and-ask price - the highest price a buyer is willing to pay and the lowest price a seller is willing to accept
Currency intervention - the act of the central bank to be involved in exchange
market operations in order to influence the countrys exchange rate
Depreciate to diminish in value over a period of times
Exchange rate - the value of one currency for the purpose of conversion to another
Hedge to protect (ones investment or an investor) against loss by making balancing or compensating contracts or transactions
Hedge fund an offshore flexible and lightly regulated investment fund, that engages in speculation using large amounts of credit or borrowed money and sometimes using innovative trading techniques. This is a fund for institutional investors or wealthy individuals. A hedge fund typically charges up to 2 per cent management fee and 20 per cent performance fee.
Lose-lose - a situation is disadvantageous to all those involved
Profit margin - the amount by which revenue from sales exceeds costs in a business
Quantitative easing - the introduction of new money into the money supply by a central bank
Quote - to give the price of currency
Spread - the difference between the local and foreign money rates or between two rates for a currency
Volatile (a volatile market) a situation is changing quickly and suddenly, for example rising and falling without much warning
Win-win - a situation in which each party benefits in some way
Zero-sum game a situation in which a balance is achieved between something such as money received and something given away
Unit VIII
Bear market - a financial market in which prices are falling, especially over a long period of time
Benchmark index - standard index
Blue chip stock stock in a well-managed company with a large amount of paid-up capital and a long record of paying profits to shareholders during good and bad economic conditions
Broker (stockbroker) a person or organization whose job is to buy and sell shares, bonds, etc. for investors and sometimes for themselves
Bull market - a financial market in which prices are rising, especially over a long period of time
Common stock the most frequent type of stock in most companies. If the company is in financial difficulty, dividends on common stock are made only after those made on some other types of stock, such as preference stock
Dealer (Br.E.) = Trader (Am.E.) - someone who deals in shares, bonds, currencies, commodities on a financial market either for themselves or for a financial institution
Debt financing borrowing by companies or governments in the form of loans on which interest is paid, for example bonds
Equity financing financing obtained by companies in the form of shares, rather than in the form of debt
GDP (gross domestic product) - -the total value of goods and services produced in a countrys economy, not including income from abroad
Go bankrupt not to have enough money to pay the debts; fail financially
Institutional investor a financial institution such as a bank or insurance company that invests in something
IPO (initial public offering) - an occasion when a company issues (=makes available) shares on a stock market for the first time
Issue stock to make stock available for people to buy
Large-cap companies - companies with large capitalization
Limited liability the condition by which shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares
Over-the-counter trading - the buying and selling of shares etc. when dealers buy and sell shares etc. directly between themselves using telephones and computers
Preference stock/preferred stock stock on which, if a company is in financial difficulty, dividends may still be paid even if they are not paid on ordinary shares. Dividends on preference stock are usually in the form of fixed interest payments
p/e ratio (price-to-earnings ratio) - a companys share price divided by the amount of profits it makes for each share in a 12-month period. P/e ratios are normally calculated on the base of all the profit made in the period, whether or not the profit is paid out to shareholders in that period
Professional investor someone whose job is investing either for themselves or for a financial organization
Raise money to collect money that is needed to do something
Stock market (=stock exchange) - a market where company shares are traded
Strike a deal - to come to an agreement
Weighted average - an average calculated by giving more value to some figures than others, depending on their relative importance
Weighted index - a share index in which certain important shares have value added to them so that when they are compared, their true effect on prices is shown
Unit IX
Bid for - to offer a price in an attempt to obtain something
Cancel - to decide or announce that a planned event will not take place
Equity flow - the movement of equities into and out of a firm
Fend off a partner - to stop a person from affecting you or defend yourself from him
Golden parachute - an arrangement in which a senior employee of a company will be paid a large amount of money if they lose their job, for example if the company is sold
Greenmail - the practice of buying enough shares in a company to threaten a takeover, forcing the owners to buy them back at a higher price in order to retain control
Launch a bid - to enter / file / make / put in / submit a bid
Listed company - a company whose shares are quoted on a stock exchange
Poison pill - a tactic used by a company threatened with an unwelcome takeover bid to make itself unattractive to the bidder, namely, to reduce their value in order to prevent themselves being taken over by another company
Predator - a company that tries to take over another
Raider - a person or organization that tries to take control of a company by buying a large number of its shares
Raise the bid - to increase in a stake
Shark repellent - slang term for any one of a number of measures taken by a company to fend off an unwanted or hostile takeover attempt. In many cases, a company will make special amendments to its charter or bylaws that become active only when a takeover attempt is announced or presented to shareholders, with the goal of making the takeover less attractive or profitable to the acquisitive firm. Some examples of shark repellents are poison pills and golden parachutes
Solve an appeal - to find means of effectively dealing with a serious and urgent request
Surmount - to overcome a difficulty, to deal successfully with something
Synergy - additional advantages, profits etc. that are produced by two people or organizations combining their ideas and resources
Take over - to get control of a company by buying its shares
Takeover bid - an offer to buy the shares of a company in order to gain control of it
Underperform the market - to increase in value less than expected
Undervalue - to fail to appreciate; to underestimate the financial value
Unsolicited - not asked for; given or done voluntarily
White knight - a friendly investor that acquires a corporation at a fair consideration with the support from the corporations board of directors and management. This may be during a period while it is facing a hostile acquisition from another potential acquirer (black knight) or it is facing bankruptcy
Unit X
Balance sheet a statement of an organizations total assets and liabilities on a specific date
Clearing the link between trading and settlement
Collateralized debt a security backed by pool of assets
Derivative a financial contract, the value of which is derived from a traditional security, asset or index
Forward a contract to buy or to sell an asset in the future at a price agreed today
Freight derivatives financial instruments for trading in future levels of freight rates. They include forward freight agreements and options based on these
OTC (Over-the-counter) not traded on an exchange
Pooling when investors put money into a single fund
Securitization conversion of credit into tradable securities
Settlement the process of exchanging cash for securities and vice versa
Swap a derivative by which two parties exchange assets or cash flows over an agreed time
Unit XI
Asset allocation how the fund manager divides investment income across stocks and other investment
Closed-ended fund a fund that trades on the stock market with a fixed number of shares in issue. In Europe, these are called investment companies
Commodity index fund a fund that gives investors pure commodities exposure, meaning to commodity prices and not the share prices of businesses associated with them
Exchange-traded fund an open-ended security that trades like a stock but has the diversification of a mutual fund, it will track the movement of an index, sector, foreign markets or commodities
Gearing use of borrowed money to try to increase returns. The US term is leverage
Mutual fund in the US and Canada, open-ended funds, outside these two countries, generic term for pooled investments
Open-ended fund a fund that can create or redeem as many more units as are required to meet investor demand. In the US, such funds are mutual funds, in Europe, they are open-ended investment companies fit this category
SEC (Securities and exchange commission) a US governmental agency which monitors trading in securities and company takeovers
Split-capital investment company closed-ended investment company that has more than one class of share capital
Venture capital trust a quoted company that invests in small growth companies, aiming to make capital gains for investors
Unit XII
Call option an option giving you the right to buy the underlying securities at a particular price in the future. Investors who buy call options think the market will rise above that price
Custodian function a financial institution that is responsible for looking after the assets of a mutual fund
The Fed bank one of 12 regional banks servicing a reserve district in the US. These are operating arms of the Federal Reserve System
The Fed system the central banking system of the US
FSA Financial Services Authority (Br.)
Money laundering concealing the origin, ownership and destination of illegally obtained money by putting it into legal businesses and bank accounts in order to hide where it was obtained
Out-of-the-money option an option that expires with no value because it only allows you to buy shares above their present price, or to sell them for less than their present price
The Ponzi scheme fraud where investors are lured into an investment scheme by promised high returns, but are paid only with the cash from earlier investors. The structure collapses when cash flow outflows exceeds inflow. The concept was named after Charles Ponzi, an Italian immigrant to the US, who, in 1919-20, took more than 15 million dollars from investors on this basis. The Madoff fraud, revealed in 2008, is the biggest example so far of a Ponzi scheme
Principles-based regime this places greater reliance on principles and outcome-focused high level rules for regulatory purposes than on prescriptive rules. The FSA has embraced the approach, which contrasts with the rules-based approach common in the US. It puts more of an interpretation onus on firms and discourages lawyers from seeking loopholes in the rules
Split-strike conversion strategy trading strategy with options, also known as collar: () "", "" ( , : "" "" ; " ", , , )
