Legal Definitions - kiter

A kiter is an individual who engages in a fraudulent scheme known as "check kiting." This scheme involves writing checks for amounts exceeding the balance in their bank account, often across multiple accounts, with the intent to delay the detection of insufficient funds. The kiter typically relies on the time it takes for checks to clear between banks to deposit new funds or checks into an account before the previously written, uncovered checks are presented for payment. This creates an illusion of having more money than is actually available, temporarily inflating account balances.

Here are some examples illustrating the concept of a kiter:

• Example 1: Personal Account Manipulation

  Sarah has two personal checking accounts, one at Bank A and another at Bank B, both with very low balances. She writes a $5,000 check from her Bank A account and deposits it into her Bank B account. Before the Bank A check has a chance to clear and potentially bounce, she writes a $5,000 check from her Bank B account and deposits it into her Bank A account. She repeats this process, creating a false impression of available funds in both accounts, allowing her to make small withdrawals or payments before the banks realize the funds aren't truly there.

  Explanation: Sarah is a kiter because she is intentionally manipulating the check clearing process between her two accounts to create a temporary, artificial increase in her available balance, knowing that the underlying funds do not legitimately exist.

• Example 2: Business Payroll Fraud

  A struggling small business owner, Mark, needs to make payroll but doesn't have enough cash in his business checking account. He writes all the employee paychecks, knowing they will overdraw the account. He then writes a large check from his personal savings account (which also has insufficient funds) and deposits it into the business account, hoping that a major client payment he expects in a few days will clear before the employee paychecks and his personal check are processed and returned.

  Explanation: Mark is acting as a kiter by issuing checks from an account with insufficient funds, relying on the "float" time and the expectation of future deposits to cover the checks before they bounce, thereby fraudulently maintaining the appearance of solvency to his employees and the bank.

• Example 3: Immediate Cash Access

  David urgently needs $1,000. He writes a check for $1,000 from a closed account or an account with a negligible balance and deposits it into his active checking account at a different bank. Immediately after the deposit, he uses his debit card to withdraw $500 from an ATM, taking advantage of the bank's policy to make a portion of deposited funds available immediately, even though the deposited check has not yet cleared and will eventually be returned unpaid.

  Explanation: David is a kiter because he is deliberately depositing a bad check to artificially inflate his account balance and gain immediate access to funds that he knows are not legitimately available, exploiting the bank's processing time and the delay in check clearing.