Kiting: ( was Really bad week for SCO)

Wed Dec 10 05:09:04 UTC 2003

The United States banking system doesn't work that way, and frankly neither
does the Canadian.  Remember, this is the late 1960's to early 1970's, and
modern sophisticated machines like the TRS-80 hadn't been invented yet.

In Canada, all cheques go through central clearing facilities (they're
regionalized for greater speed) and get forwarded to the bank according to
the MICR encoding on the bottom of the cheque.

In the States, which is about 10 times the size of Canada, the cheques
follow the same distribution pattern... within each Federal Reserve
district.  New York is in one, California is in another.  Our hero's cheques
would enter New York's Federal Reserve Bank (Each Federal Reserve District
goes by numbers, I forget which is which but it doesn't matter right now),
get fed into the machines and get sorted and sent to the district Reserve
Bank that California is in.  When they arrived in sunny California, they
were then further sorted into bank branches - once again using the MICR code
and monster sorting machines.  No human intervention just yet.  For those of
you counting, that's Day Two of the process.

Then when the bank gets their stack of cheques, they feed them into THEIR
sorting machines so they can record the amount and the payer's account...
except there isn't one, so the machine barfs it out.  Now, we finally get
the human being involved, who looks at the cheque, sees it's actually drawn
on a New York bank (because he's looking at the logo, not the MICR code),
shoves it into a special envelope with one transparent side, and sends it
back through the Federal Reserve in California (day 3), who send it to the
Federal Reserve in New York (day 4), where it resumes its merry way back to
California (day 5), which sends it to the branch encoded on the bottom of
the cheque (day 6) (insert Mobius loop here)...

And the payment keeps flipping back and forth between the California bank
and the two Reserve Banks, until even the glassine envelope is looking
mighty tattered.  Then somebody looks at logo/bank name and the MICR
encoding, and realizes HEY, WE WUZ TOOK!

Kiting depends on having cheques deposited simultaneously in two different
accounts in (preferably) two separate Reserve Districts.  One bank Hutton
tried to use was located in a tiny town in the middle of nowhere (in
Colorado IIRC), over a day's travel from the Federal Reserve Bank whose
district it was in.

His Lordship Mayhem
-----Original Message-----
From: owner-tlug-lxSQFCZeNF4 at public.gmane.org [mailto:owner-tlug at ss.org] On Behalf Of James Knott
Sent: Tuesday, December 09, 2003 5:40 PM
To: tlug-lxSQFCZeNF4 at public.gmane.org
Subject: Re: [TLUG]: Kiting: ( was *Really* bad week for SCO)

That doesn't make sense.  A cheque is returned to the home bank as 
quickly as practical, either directly, through a clearing house or via 
3rd party banks.  Once it's there, it stays unless bounced back. 
There's no reason for it to keep making the rounds.  Kiting requires 
issuing a series of checques to cover the previous ones.

Peter Hiscocks wrote:
> I heard of one kiting scheme that was finally discovered when the magnetic
> ink on the cheque wore down to the point that it could no longer be read
by
> the cheque-reading machines and had to be handled by a human. Apparently
the
> cheque had been going back and forth across the continental US for several
> weeks before that happened.
> 
> Peter
> 
> 
> On Mon, Dec 08, 2003 at 11:52:49PM -0500, Gary Layng wrote:
> 
>>I think I can google something up, but for now:
>> - kiting is illegal.  The scheme depends on how long it takes cheques to
>>clear the central clearing facility that all banks share.  Imagine you
have
>>two bank accounts with, say, $50 in each.  You cut a cheque from your
>>account in Bank 1 for, say, $5 million, and deposit it into the account
you
>>have in Bank 2.  At the same time you also cut a cheque from the Bank 2
>>account and deposit it into the account in Bank 1.  When the cheques
clear,
>>you have enough money to cover them.  You get the interest on the $10
>>million dollars you had for two-three days in the two accounts.
>> - Margin is perfectly legal.  "On margin" means that you borrowed money
>>from your broker to buy shares.  Typically the broker lends you up to
about
>>75% of the value of the shares.  If the value of the shares drops 25% you
>>get a "margin call" and they can sell the shares.  You're leveraging your
>>potential capital gains by borrowing the money, but it's quite dangerous.
>>
>> 
>>His Lordship Mayhem
>>
>>-----Original Message-----
>>From: owner-tlug-lxSQFCZeNF4 at public.gmane.org [mailto:owner-tlug at ss.org] On Behalf Of Byron
Sonne
>>Sent: Monday, December 08, 2003 7:30 PM
>>To: tlug-lxSQFCZeNF4 at public.gmane.org
>>Subject: Re: [TLUG]: *Really* bad week for SCO
>>
>>
>>>its stock price may jump to $50, and if you hold -100 of them, you'll
>>>now have to pay $5000 to close out your position, and you're in the hole
>>
>>big
>>
>>>time.
>>
>>Does anyone have a link to a site or some docs that explain, to a putz 
>>like me, what all this various financial wizardry is?
>>
>>I've seen shorting briefly explained here, but what about kiting, 
>>selling on margin, etc, and various other techniques and scams? I'd like 
>>to know but I don't have the inclination to read entire books about this 
>>stuff, or become a CPA or something.
>>
>>Later,
>>B
>>--
>>The Toronto Linux Users Group.      Meetings: http://tlug.ss.org
>>TLUG requests: Linux topics, No HTML, wrap text below 80 columns
>>How to UNSUBSCRIBE: http://tlug.ss.org/subscribe.shtml
>>
>>--
>>The Toronto Linux Users Group.      Meetings: http://tlug.ss.org
>>TLUG requests: Linux topics, No HTML, wrap text below 80 columns
>>How to UNSUBSCRIBE: http://tlug.ss.org/subscribe.shtml
> 
> 

--
The Toronto Linux Users Group.      Meetings: http://tlug.ss.org
TLUG requests: Linux topics, No HTML, wrap text below 80 columns
How to UNSUBSCRIBE: http://tlug.ss.org/subscribe.shtml

--
The Toronto Linux Users Group.      Meetings: http://tlug.ss.org
TLUG requests: Linux topics, No HTML, wrap text below 80 columns
How to UNSUBSCRIBE: http://tlug.ss.org/subscribe.shtml