Wall Street Language

Written by Eric Norstedt on November 24, 2008 – 6:14 pm -

The Language of Wall Street, while peculiar, is commonly used by individuals associated with the Financial Industry.  Anyone who has listened to a financial analyst on CNBC will know what I mean. Wall Street insider conversations can be extremely cryptic and confusing.  Those who work for Wall Street firms speak in acronyms, initials and other abbreviations whenever possible.     For example, I was listening to a conversation wherein the regulatory hierarchy of Wall Street was explained as follows:

The SEC oversees the SRO’s such as the NASD, NYSE and AMEX cumulatively n/k/a FINRA.  The CFTC oversees the NFA, CBOE, CBT and the CME. No government agency regulates the FX.

The speaker went on to explain,  In turn the SRO’S regulate the BD’s and their employees.  The BDs through the CD and IAD and their employees, the IAs, CEs and CAs, review the BOM’s, RR’s, FA’s, AEs, IB and RIAs.  The RR’s FA’s AE’s, RA’s and IBs, RIAs make the money for the BDs selling products such as RR’s, CDs ETFs, UITs and CMOS as well as stocks such as MOT, BAC, DIS, INTC.  The RA’s in the RD supports the sales force by calculating and interpreting EPS, PEs, YTM, YTC, DY and other ratios for securities. The RAs also forecast and report on the performance of the DJIA, S&P QQQ and other indexes…

(translation below)


Most people who are not on the inside will be lost in the first sentence.  Those who have heard some of the underlying terms may hang on for the first paragraph but few non-insiders will understand the entire conversation.

All too often Stock Brokers speak to their clients with this specialized language. Unfortunately clients, for whatever reason, do not ask for clarification.  Perhaps it is for fear of looking naive.  However, missing the meaning of one word in a conversation regarding your lifesavings could lead to significant repercussions including losses of those lifesavings.   Clients should always ask questions about what the Stock broker’s  plan is for their savings regardless of how naive it may make them feel.  The Stock Broker is representing him or herself as an expert in investments.  They should be able to explain in very simple terms how they will invest your funds.  Do not back down when the Stock Broker tells you it would be too hard to explain or assures you that you do not have to worry because they are acting in your best interest.  Ask questions.  If I were to speak to my clients using Latin legal jargon they would walk out of my office.  Similarly, if the broker puts you off or will not answer your questions you should find someone else.   Remember Stock Brokers get paid for how much they sell, not how well your account is doing. Their incentive is to get you to agree with them regardless of whether you understand what they are saying.  You worked hard for your money, you have a right to be fully informed of your investments including the risks the broker is taking with your savings.

In case you were wondering, the following is the translation of the paragraph above:

The Securities and Exchange Commission ( SEC ) oversees the Self Regulatory Organizations (SRO’s )  such as the National Association of Securities Dealers (NASD),  New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX)  cumulatively Now Known As  (n/k/a)  the Financial Industry Regulatory Association (FINRA).  The Commodities Futures Trading Commission (CFTC) oversees the National Futures Association (NFA), Chicago Board of Options Exchange (CBOE), Commodities Board of Trade (CBT)  and the Chicago Mercantile Exchange (CME). On the other hand, no government agency regulates the Foreign Exchange (FX )  .

The Self Regulatory Organizations (SRO’s )regulate the Broker Dealers (BD) and their employees.  The Broker Dealers, through their Compliance Departments (CD) and Internal Audit Departments (IAD) and their employees, the Internal Auditors (IA), Compliance Examiners (CE) and Compliance Analysts (CA) , review the Branch Office Managers (BOM’s ), Registered Representatives (RR’s),  Account Executives (AEs), Financial Advisors (FA’s), Investment Bankers (IB’s), and Registered Investment Advisors ( RIA’s )

The Registered Representatives (RR’s), Account Executives (AEs), Financial Advisors (FA’s) Investment Bankers (IB’s) and Registered Investment Advisors (RIA’s) are the money makers for the firm. They  sell products such as Certificates of Deposits (CDs), Exchange Traded Funds (EIT),  Unit Investment Trusts (UIT), Debt Securities (DS), Collateral Mortgage Obligations (CMOS), Auction Rate Securities ( ARS ) as well as stocks such as Motorola (MOT), Bank of America (BAC), Disney (DIS), Intel (INTC).

The Research Analysts (RA)’s in the Research Department (RD) supports the sales force by calculating and interpreting Earning Per Share (EPS), Price Earning Ratio (PEs), Yield to Maturity (YTM), Yield to Call (YTC), Dividend Yield (DY) and other ratios for securities. The Research Analysts also forecast and report on the performance of the Dow Jones Industrial Average (DJIA), Standard and Poor’s 500 (S&P),   National Association of Securities Dealers Automated Quotations (NASDAQ), NASDAQ 100 (QQQ) and other securities indexes…

Eric Norstedt, www.usinvestorlaw.com


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SEC Charges Norman Hsu with a Ponzi Fraud

Written by Eric Norstedt on October 7, 2008 – 12:06 pm -

October 7, 2008

The SEC announced yesterday that it filed charges against Norman Hsu in connection with operating a 60 million dollar ponzi scheme. A ponzi scheme is organized much like a pyramid. The schemes promoter is paid by other investors below the promoter who in turn get paid by those below them and so on. Individuals invest in the scheme by the promises of high returns. Eventually the scheme fails as there are no new investors or the scheme is discovered by authorities.

The Ponzi scheme is named after Charles Ponzi, who in the early 19th century diverted funds of investors in a international currency arbitrage. The diverted funds were used to pay investors who withdrew funds that they thought were profits and to support Charles Ponzi’s lavish lifestyle. .

According to the SEC, Norman Hsu through his corporation Next Components informed investors that they could expect returns ranging from 14 to 24 percent every 70 to 130 days. Instead the SEC charged that Norman Hsu used the investor money to support a luxury Life style.

The Securities and Exchange Commission’s release is reprinted in its entirety below.

Washington, D.C., Oct. 6, 2008 — The Securities and Exchange Commission today charged Norman Hsu and his company Next Components with operating a $60 million Ponzi scheme that allegedly used investor funds to compensate sales agents, make political campaign contributions, and support Hsu’s luxurious lifestyle.

Hsu, a former resident of California and New York, is in federal custody awaiting trial on federal criminal charges of investment fraud and wire fraud in connection with his operation of the alleged nationwide Ponzi scheme.

“As alleged in our complaint, Hsu and his company used investor funds to make significant political contributions to prominent politicians,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “He allegedly then used the veneer of respectability created by his political connections to persuade his investors that the investments he offered were legitimate. This deception convinced investors to continue to invest with Hsu, even as he and his company allegedly siphoned away investor funds to pay for his own extravagant lifestyle and to finance a Ponzi scheme.”

Rosalind R. Tyson, Regional Director of the SEC’s Los Angeles Regional Office, added, “This case demonstrates that the Commission aggressively seeks out offering fraud, regardless of the social status of the perpetrator of the fraud. It also is a caution to investors that they need to be wary of relying too heavily on appearances when making investment decisions. The apparent sophistication of a deal or the person offering the deal is no substitute for old-fashioned issuer transparency and investor due diligence.”

According to the SEC’s complaint, filed in the federal district court for the Central District of California, Hsu presented himself as an international businessman with high-level contacts with overseas businesses, particularly in the Chinese apparel and technology industries. The SEC’s complaint alleges that from January 2003 through September 2007, Hsu told investors that Next Components would pool their funds to finance bridge loans negotiated by Hsu that would generate investor returns of 14 to 24 percent every 70 to 130 days.

The SEC alleges that Hsu and Next Components instead used new investor funds to pay “returns” to pre-existing investors, and misappropriated the remainder of investor funds to pay sales agent commissions, finance Hsu’s luxury living and entertainment expenses, and reimburse investors for political donations solicited by Hsu.

The complaint alleges that Next Components and Hsu violated the antifraud and registration provisions of the federal securities laws. The Commission seeks permanent injunctions, disgorgement, prejudgment interest, and civil penalties against the defendants.

The Commission acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.


The Law Office of Eric Norstedt, P.A. represents investors victimized by Investment Fraud. More information can be found at www.usinvestorlaw.com

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