The Academy Award-nominated film “The Wolf of Wall Street” has garnered nearly as much controversy as it has critical acclaim. The film’s depiction of Stratton Oakmont founder Jordan Belfort’s outrageous lifestyle, fueled by sex, drugs and greed, makes for an entertaining – and wild – ride, but noticeably leaves out a key element in his scheme: the victims. This glamourized version of events has left many feeling as though Martin Scorsese’s interpretation glorifies Belfort and excuses his actions, despite their devastating effect on numerous families and individuals.
FBI Special Agent Gregory Coleman, who led the investigation into money laundering that was Belfort’s eventual downfall, shared his account of events during Part One of a special two-part session during a Monday concurrent session. Former U.S. Attorney Joel M. Cohen, who led the prosecution against Belfort, will share his viewpoint Tuesday.
Belfort founded stock brokerage firm Stratton Oakmont, a boiler room, making millions off penny stocks in a pump and dump scheme. Coleman’s case against Belfort began in 1992 when a new task force at the FBI was created to investigate securities fraud. The Securities and Exchange Commission (SEC) had recently charged Belfort with securities fraud and barred him from business.
He said the key to Belfort’s success, for the lack of a better word, in carrying out his fraud was his ability to create an air of legitimacy around his company. Belfort created classy and hyperbolic marketing materials calling his company a top finance investment firm. He wore the best clothes and entertained in the most expensive fashion. In brochures and fliers, he listed his competitors as well-known larger firms like Morgan Stanley and Merrill Lynch.
Another way that Belfort stayed on top was by recruiting employees who had virtually no training in stock brokerage. In fact, many of them had no skills at all. They were high school and college friends that Belfort was able to carefully groom into master salesmen of bunk stocks.
The extravagant lifestyle that helped create Belfort’s appearance of legitimacy and his recruitment style were not the only red flags of fraud that caught Coleman’s eye. In 1993, Belfort marketed his returns as 75 percent, and in 1994 he showed his returns as almost 90 percent; the latter a shocking number compared to other top Wall Street firms that all lost money that year. As we all know and have to continually remind investors, when it is too good to be true, it almost certainly is.
“Jordan Belfort was a dangerously smart criminal,” Coleman said. “His own employees thought the business was legitimate for up to a year in some cases year because of how well he marketed the company.” Coleman later said, “A broker does not sell stock, he sells a story.”
After the story was selling and money came flooding in, Belfort soon realized he had to find a place to put all of the cash he was receiving from his schemes. As Coleman pointed out, hiding millions of dollars in cash only leads to one additional crime: money laundering. “Belfort moved all of his money offshore through a husband and wife team; the woman, a Swiss citizen fluent in French, traveled to Geneva with thousands of dollars in her luggage and on her body,” Coleman said. “It wasn’t important where the banks were in Geneva or where the shell companies were set up. The key is the bank account.”
Coleman closed his session with a detailed description of the process of locating the bank accounts through transactions and signatures full of tell-tale signs of a fraud. The time stamps, the amounts, the signatures and the monetary unit were the keys Coleman needed to build his case and eventually arrest Belfort in 2003. He received a four-year prison sentence (he served 22 months) and was ordered to repay $110.4 million to a victim compensation fund.
Check back tomorrow for coverage of Part Two, when the prosecutor, Joel Cohen, will tell his side of the story. For even more conference coverage, visit FraudConference.com.