Kiting

The act of misrepresenting the value of a financial instrument for the purpose of extending credit obligations or increasing financial leverage. Kiting generally occurs when securities firms fail to deliver securities involved in buy and sell transactions in a timely manner (before the three-day settlement period). When this occurs, the firm failing to receive the securities is required to purchase the shortage on the open market and charge the delinquent firm any associated fees. The fraudulent act of kiting occurs when the firm fails to purchase the securities on the open market and maintains a short position, delays delivery, or takes part in transactions contrary to SEC regulations regarding the proper settlement of trades.