Stuffing

AAA

DEFINITION of 'Stuffing'

The act of selling undesirable securities from the broker-dealer's account to client accounts. Stuffing allows broker-dealer firms to avoid taking losses on securities that are expected to decline in value. Instead, client accounts take the losses. Stuffing can also be used as a means to raise cash quickly when securities are relatively illiquid and difficult to sell in the market.

INVESTOPEDIA EXPLAINS 'Stuffing'

While stuffing is widely regarded as unethical, it can be difficult to prove whether such transactions constitute fraud. Often, broker-dealers are given the power to buy and sell without client consent for "discretionary" accounts. Furthermore, the legal standard for broker-dealers buying securities for these accounts is "suitability," which can be broadly interpreted. Since discretionary accounts provide so much power to broker-dealers, many financial advisors suggest that customers insist on providing consent for all transactions in their accounts.

RELATED TERMS
  1. Securities Fraud

    A type of serious white-collar crime in which a person or company, ...
  2. Conflict Of Interest

    A situation where a professional, or a corporation, has a vested ...
  3. Broker-Dealer

    A person or firm in the business of buying and selling securities, ...
  4. Broker

    1. An individual or firm that charges a fee or commission for ...
  5. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  6. Synthetic Identity Theft

    A type of fraud in which a criminal combines real (usually stolen) ...
RELATED FAQS
  1. What are the key differences between pro forma statements and GAAP statements?

    The U.S. generally accepted accounting principles (GAAP) require companies to adhere to uniform reporting standards that ... Read Full Answer >>
  2. Who are the most famous people convicted of insider trading?

    In finance, insider trading refers to the buying and selling of security by a person who has access to material non-public ... Read Full Answer >>
  3. What's the difference between insider trading and insider information?

    Insider information is the knowledge of nonpublic material about a publicly traded company that may affect the stock's price. ... Read Full Answer >>
  4. What are examples of businesses that exhibit social responsibility?

    In the 21st century, companies that exhibit corporate social responsibility are winning high marks from consumers and investors ... Read Full Answer >>
  5. How do the C-suite members work together to make a successful company?

    Corporate managers, typically chosen by a board of directors in large organizations, are ultimately responsible to stakeholders ... Read Full Answer >>
  6. How does agency theory propose to deal with the agency problem?

    Agency theory highlights potential problems that may occur when agents and principals have different interests. Principals ... Read Full Answer >>
Related Articles
  1. Brokers

    Top Broker Excuses For Poor Investments

    It is not uncommon for investors to lose money through misselling or other forms of mismanagement.
  2. Personal Finance

    Losing Money? Don't Blame Your Broker

    Tempting as it is to pass the buck for your losses, the true culprit may be closer to home.
  3. Brokers

    Evaluating Your Stock Broker

    Make sure you're getting the best service by staying informed and involved.
  4. Personal Finance

    4 Dishonest Broker Tactics And How To Avoid Them

    Protecting yourself from unscrupulous practices means knowing how to spot them.
  5. Retirement

    Choosing A Compatible Broker

    We go over the factors that determine different investing personalities, and the services that best suit them.
  6. Brokers

    Is Your Broker Acting In Your Best Interest?

    Learn the clues you'll need to determine whether you've chosen a reputable professional.
  7. Economics

    What is Price Discrimination?

    Price discrimination occurs when a company charges different customers different prices for the same goods or services.
  8. Economics

    What Does Asymmetric Information Mean?

    Asymmetric information describes a situation where one party in a transaction knows more than the other.
  9. Economics

    Understanding Money Laundering

    The process of creating the appearance that large amounts of money obtained from serious crimes actually originated from a legitimate source.
  10. Investing Basics

    What is a Minority Interest?

    A minority interest is an ownership or equity interest of less than 50% of an enterprise.

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center