Certificate of deposit [CD]: A certificate issued traditionally issued by a bank as a record of deposit for a specific amount of money. Typically, banks use the funds deposited for a CD to make corporate or personal loans. U.S.-based CDs make, on average, low interest payments over their maturity date. The Stanford CD offered higher than average interest returns for long-term deposits.
Accredited ?Investors Status: According to Rule 501 of Regulation D from the SEC, the term refers to a number of qualifications that, if met, allow a company to sell nonregulated securities to the individual or accredited investor. In the case of an individual, accredited investors have either a net worth [or joint net worth] of $1 million at the time of purchase, earn in excess of $200,000 annually [$300,000 annually for joint earners] or have a trust worth in excess of $5 million.
Due diligence: In the case of an adviser or investment firm, it’s the internal audit of a particular product before offering it to investors. The process often includes a DDQ [Due Diligence Questionnaire].
Ponzi scheme: Named for Charles Ponzi, who in the 1920s convinced residents of New England to invest in speculative postage stamp purchases that would take advantage of the differences in currency exchange rates, promising a 40% interest return. Now the term is used to describe any investment scheme in which [whether initially or eventually] the cash from later investors is used to pay out interest to earlier investors.
Clearing broker: Often called “clearing corporations,” clearing brokers like Bear Sterns, SEI or Pershing are large organizations affiliated with exchanges or investment firms to verifying, insuring and completing securities transactions.
Broker: An “adviser” who is paid a commission per transaction of securities. In the case of Stanford, many advisers served as a broker between the seller [Stanford International Bank] and the buyer [investors]. As a broker-dealer, advisers can buy and sell on the behalf of clients.
Certified ?Financial Planner: An investment adviser who has surpassed the certification required to operate as a broker. A CFP has passed the Certified Financial Planner Board of Standards accreditation exam. The certification implies a planner’s ability to handle, in full, the complete financial plan including investments, real estate, insurance, taxes and banking for a client.
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