Jordan Belfort and his Illicit Schemes: Manipulating the Stock Market
Notorious stock manipulator Jordan Belfort left a lasting legacy marked by illegal activities, most famously through his use of the pump and dump scheme and the manipulation of penny stocks. His story spans from the shady world of investment to the bustling stock exchanges, and exposes the dark side of market manipulation.
The Beginnings of an Unforgiving Personality
JB, as Belfort was known within the industry, began his career by working at an investor centre where he earned quick profits from selling penny stocks to unsuspecting and financially vulnerable individuals. His early career was marked by deception and manipulation, employing techniques that would later define his notorious reputation.
Setting Up Stratton Oakmont
The establishment of Stratton Oakmont marked the beginning of Belfort's rise to infamy. Using pump and dump schemes, he and his associates would strategically buy undervalued and seemingly worthless stocks. By making misleading statements, they prompted enthusiastic investors to buy into the stock, driving its price up. Belfort then sold his own shares at the inflated price, reaping substantial profits while leaving his investors with significant financial losses.
Manipulation of Penny Stocks and NASDAQ Stocks
Beyond penny stocks, Belfort and his associates also engaged in elaborate schemes to manipulate NASDAQ stocks. One such scheme involved getting people to buy small amounts of normal NASDAQ stock to gain their trust and then encouraging them to invest in penny stocks, which come with higher commissions. It was not uncommon for Belfort to buy back worthless stock that he owned without disclosing it to his clients.
Selling Non-Existent Stocks and Illicit Stock Deals
Another illegal tactic employed by Belfort was selling non-existent stocks, an act that clearly violated market regulations. His friend, Danny Porush, helped implement a scheme where Steve Madden, the woman's shoe company, was taken public. However, Steve Madden and Danny owned large shares in the company, which is illegal under securities laws. Belfort and friends coerced Steve Madden into signing papers stating that the stock belonged to him and placing it in escrow. This was a clear violation of regulations, as Steve Madden was bound to own less than 5% of the company to be listed on NASDAQ.
The Jersey Shore Scheme: ETFs and Ratholes
The Jersey Shore manipulation scheme took market manipulation to a new level. In this case, ratholes, or individuals who owned shares on paper but were not allowed to own more than 5% of any stock, were used to buy large amounts of new issue stock at standard prices. For example, in the case of Steve Madden, 1 million of the 2 million units offered to the public were bought by ratholes, allowing Belfort to buy back the stock for a fraction of its initial price before inflating the price through astoundingly aggressive phone campaigns. Belfort then sold his own stock at the inflated price, making a massive profit of 20-25 million.
Legal Consequences and Legacy
Belfort's activities were not just immoral but were also illegal. He was charged with multiple counts of securities fraud, and eventually, he was sentenced to 22 years in prison. His experiences were fictionalized in the 2006 film The Wolf of Wall Street, bringing his story to an even wider audience. Belfort's legacy serves as a chilling reminder of the consequences of market manipulation and the importance of stringent regulatory oversight in financial markets.
Conclusion
The life of Jordan Belfort is a stark illustration of market manipulation and the devastating impact such activities can have on individuals and the economy. While his story provides valuable lessons on the unethical and illegal practices within the financial world, it also highlights the necessity of effective regulatory measures to protect investors and maintain market integrity.