Everyone has their version of the American Dream. Some work long hours for many years to finally become successful. Others take shortcuts, such as defrauding investors and manipulating the market. One well-known example is Jordan Belfort, whose popularity skyrocketed thanks to the movie The Wolf of Wall Street, with Leonardo DiCaprio portraying him. His life has been a rollercoaster ride, with as many highs as lows. Despite all this, he somehow came out successful after being able to rebrand his image.
If you’ve never heard of Jordan Belfort, here’s a quick recap of his life and how he impacted the stock market.
Who Is Jordan Belfort?
Jordan Belfort was born in 1962 in the Bronx. After briefly attending American University, he began his career as a door-to-door meat and seafood salesman on Long Island in the 1980s. Unfortunately, that business wasn’t successful for many reasons and led to bankruptcy in 1987, when he was only 25.
His first taste of finance was a brief stint as a trainee stockbroker at L.F. Rothschild. Unfortunately, he was laid off when the firm experienced financial difficulties related to the Black Monday stock market crash of 1987. In 1989, Belfort’s life took a turn and paved the path for the rest of his life.
Stratton Oakmont
In 1989, Belfort founded Stratton Oakmont. It was initially a franchise of Stratton Securities, but Belfort later bought out the founder. Shortly after, Stratton Oakmont began operating as a boiler room. In the context of stocks and investments, it refers to an operation that uses high-pressure and often unethical or illegal sales tactics to sell questionable or fraudulent securities to unsuspecting investors.
Boiler room operators employ various strategies to manipulate investors:
- Pump & dump – They artificially inflate the price of a stock through false statements, then sell their shares at the inflated price. As a result, this has become a common tactic for many new cryptocurrencies and low-volume stocks.
- Aggressive pitches – Salespeople use persuasive language and create a sense of urgency to pressure investors into making quick decisions.
- Misleading claims – Exaggerated promises of high returns with little to no risk.
- Targeting vulnerable investors – Many boiler rooms focus on inexperienced or elderly investors who may be more susceptible to high-pressure tactics.
The SEC actively investigates and prosecutes these schemes. Many tactics used in boiler rooms violate the National Association of Securities Dealers (NASD) rules of fair practice and the SEC’s Rule 10b5, which prohibits deceptive practices in securities trading.
Jordan Belfort’s Fraudulent Activities
During the late 1980s and 1990s, Stratton Oakmont grew to become the largest over-the-counter (OTC) brokerage firm in the US. In addition to pump-and-dump schemes, Belfort engaged in money laundering.
He attempted to smuggle money out of the US to Swiss bank accounts. In one instance, his drug dealer, Todd Garrett, was caught with $200K in cash from Belfort and his partner, intended for Switzerland.
A year later, a French private banker was arrested in Miami as part of a money-laundering scheme and identified Belfort as a client.
Legal Troubles
At its peak, Stratton Oakmont employed over 1000 stockbrokers and was involved in stock issues totaling more than $1B. This included the IPO for footwear company Steve Madden (more below).
The firm’s success allowed Belfort to lead a life of extreme luxury and excess, fueled by heavy drug use, particularly methaqualone (Quaaludes). This drug was very popular in The Wolf of Wall Street.
Unfortunately, Stratton Oakmont’s illegal activities did not go unnoticed. The firm has been under scrutiny from the NASD (now FINRA) since its inception.
However, it wasn’t until 1996 that Stratton Oakmont was expelled from the NASD, and Belfort wasn’t indicted for securities fraud until 1999. Belfort admitted to manipulating the stock of 34 companies.
On September 2nd, 1998, Belfort was arrested for conspiracy to commit money laundering and securities fraud. The charges stated that he had defrauded more than 1500 investors out of over $200M.
Belfort agreed to cooperate with law enforcement in exchange for a lighter sentence, wearing a wire to record conversations with business associates under investigation.
Not a fun fact: Jordan Belfort was ordered to pay $110.4M in restitution to the 1513 clients he defrauded. To this day, according to many sources, he only paid out $12.8M to these victims.
Steve Madden IPO (NASDAQ: SHOO)
Let’s go back to Steve Madden’s IPO. Before the IPO, the stock was valued at $4 per share, but Jordan Belfort set the opening price at $5.50 per share, artificially inflating it before trading even started.
Throughout the day of the IPO, Stratton Oakmont traders aggressively pushed the stock price up while selling to investors and other investment firms. By the end of the first day of trading, the stock price had risen from the opening price of $5.50 to $19 per share.
That’s not all. Belfort also concealed the extent of his ownership in Steve Madden’s company through proxies.
He employed individuals, including Steve Madden himself, to hold stock on his behalf while owning it in name only. This allowed him to maintain control over a much larger portion of the company than legally permitted.
His proxy shares reportedly made up more than 50% of the business, far exceeding the legal limit of 5%. For his role in the Steve Madden IPO, he was convicted of market manipulation and fraud.
Conviction and Aftermath
Despite the potential for a 20-year sentence, Belfort received a reduced sentence. In 2003, Belfort was sentenced to four years in prison but served only 22 months due to his cooperation with authorities.
He was also ordered to pay his victims $110.4M in restitution. During his incarceration at the Taft Correctional Institution in California, Belfort shared a cell with comedian Tommy Chong, who encouraged him to write about his experiences.
Post-Prison Career & Wolf of Wall Street
Following his release from prison in April 2006, Belfort began his career as an author. His first memoir, The Wolf of Wall Street, was published in 2007 after being acquired by Random House for $500K. The book became a bestseller, followed by a second memoir in 2009, Catching the Wolf of Wall Street.
Belfort’s story gained even more attention when The Wolf of Wall Street was adapted into a film by Martin Scorsese in 2013, with Leonardo DiCaprio portraying Belfort. The movie became very successful.
However, in 2020, Belfort filed a $300M lawsuit against Red Granite, the production company that purchased the film rights to The Wolf of Wall Street. The lawsuit came after it was revealed that the deal was financed with questionable funds from Malaysia.
Belfort claimed he would never have transacted with the company if he had been aware of the dirty money that financed its operations.
Let’s’ put the irony of this lawsuit aside for a moment. As of the latest available information, it appears that Belfort’s lawsuit did not result in the payout he sought or with any significant victory.
Motivational Speaker & Business Consultant
Since his release, Jordan Belfort has reinvented himself as a motivational speaker and business consultant. He travels the world giving speeches on sales techniques and business ethics, drawing from his experiences on Wall Street and in prison. More irony?
However, Belfort’s post-prison life has not been without controversy. Prosecutors have accused him of failing to fully compensate the victims of his crimes, alleging that he has pocketed lucrative speaking fees instead of channeling them toward his restitution requirements.
Jordan Belfort Lessons
It often takes fraud and deception for people to learn and rules to change. Belfort’s fraudulent activities taught some people a few lessons.
- Use caution – Belfort’s schemes highlight the dangers of buying investments based on unsolicited phone calls or high-pressure sales tactics.
- Regulatory oversight – The Stratton Oakmont saga highlights the importance of robust regulatory oversight in the financial industry.
- Long-term consequences – Despite the short-term gains, fraudulent activities often lead to severe legal, financial, and personal consequences. Some people get away with it, others like Belfort, Sam Bankman-Fried, and others don’t.
- Rehabilitation and restitution – This case raises questions about the justice system’s effectiveness in rehabilitating white-collar criminals and ensuring full restitution to victims. Over 20 years have passed, and Jordan Belfort still hasn’t paid the total amount of his debt. Just over 10% of it has been paid out.
Final Thoughts: Jordan Belfort
To conclude, Jordan Belfort defrauded many investors and manipulated the market to make hundreds of millions of dollars. He served 22 months of jail time for his crimes because he cooperated with the authorities.
Once he escaped jail, he wrote a book that became one of the best stock market movies ever and made even more money.
He didn’t even have the decency to pay the penalty for his crimes, and the authorities weren’t pursuing him. In other words, he took advantage of the system and got a slap on the wrist. In the meantime, many of us are trying to find the best entry and exit points while trading.
If you want to learn more about profiting from the stock market, head to our free library of educational courses. We have something for everyone, including trading options for those with small accounts.
Frequently Asked Questions
What Is Jordan Belfort Doing Nowadays?
Today, Jordan Belfort runs seminars, skills, and entrepreneurship classes and discusses ethics.
Is Stratton Oakmont Still in Business?
The company closed its doors when Belfort was arrested in 1996 after defrauding many and manipulating the market.
How Much Does Belfort Still Have to Pay?
Many sources say he still owes more than $100M in restitution.