Blog : The Penny Stock Wolf of Wall Street

by Ed Zwirn on January 10th, 2014

Jordan BelfortI admit I had intended anyway to see this film because of the rationale attached to its 'R' rating: Any flick which must caution against "strong sexual content, graphic nudity, drug use and language..." must have at least that much entertainment value (translate: I don't get out enough).

But until I learned of the backstory behind The Wolf of Wall Street I had been prepared to suffer through yet another all-too-easy cinematic condemnation of Street excesses for the sake of a night out in which I get to view that which I don't get (or at least don't get enough of) at home. Little did I realize that I would have an excuse to write about it in one of my blogs.

You may know this already, but it turns out that there was a real "Wolf of Wall Street" and this film comes from his autobiography: One Jordan Belfort, now 51, who in the 1990s founded the brokerage firm Stratton Oakmont. This brokerage apparently functioned as a "pump-and-dump" boiler-room operation for penny stocks, at least if we can go by Belfort's1998 indictment. After cooperating with the FBI, he served 22 months in federal prison for the pump-and-dump scheme, which resulted in investor losses of approximately $200 million, and was ordered to pay back $110.4 million. In prison he met stoner Tommy Chong, who encouraged him to write about his experiences.

I have yet to see the film, but this biography strikes a chord within me for two reasons:

1) It is obviously operations like these that have helped give penny stocks a bad name, or at least a worse name than they would otherwise deserve. Even under the best of circumstances, a hot penny stock is by definition a risky investment. But as Peter Leeds has pointed out many times, the Belfort case is only one example of the many pump-and-dump scams out there that cheat investors by offering "free" stock touts and profit on the proceeds by cashing out. As Belfort's did, these schemes often rely on "pink sheet" stocks too questionable for listing even on a minor stock exchange.

2) This may be the creepy part: I find that I've had a few things in common with Belfort. For one thing, we both come from similar working class neighborhoods in the "outer" New York borough of Queens. As an aside, the Queens neighborhood in which I spent five formative years was also inhabited at that time by Bernie Madoff. 
The Twin TowersIt was perhaps this time spent in the periphery of the Big Apple that eventually propelled Belfort, Madoff and Zwirn to the Center of the Universe. The time I spent on Wall Street overlapped with the Wolf of Wall Street, and we were both in our thirties at that time. But I was only on the periphery of the party.

Although a typical workweek would involve all of the things warned about in the 'R' rating rationale (albeit maybe a little softer on the "language" aspect), I was experiencing these goodies on the much lower level of intensity that comes from a much lower budget. In short, while I was bragging to women at World Trade Center bars about having made AVP at Merrill Lynch, hoping they'd be too intoxicated to know how little a deal that was, Belfort was out throwing orgies, sinking yachts and stealing hundreds of millions of dollars from clients.

While it would be tempting to congratulate myself for having taken "the high road" back in the day, my reaction to this saga is probably more closely reflected in the following comment posted underneath the film's YouTube trailer: "this is how you should experience life go all out doing tons of illegal shit but making money by the millions spend a few years in jail and when you come out they make a movie about your life story."

Indeed. Belfort's 2003 sentencing agreement requires him to pay 50% of his income towards restitution to the 1,513 clients he defrauded, up to a total $110 million. In October 2013, federal prosecutors filed a complaint that Belfort, who had income of $1,767,209 from the publication of his two books and the sale of the movie rights, plus an additional $24,000 from motivational speaking since 2007, paid restitution of only $243,000 over the past four years.

Doing the math compels me to conclude I missed out on an opportunity. And while it may be too late for me personally to embark on a major fraudulent undertaking and become a Wall Street wolf, I take heart in the fact that there are so many young people out there who, lacking career guidance, can be made aware of a career path that still exists out there. Much as Horatio Alger stories once inspired young people in the U.S., this is the type of film that is needed as so many other opportunities are closing up.

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