The Wolf of Wall Street - Case Study Example

The Wolf of Wall Street Jordan Belfort nick d “The Wolf of Wall Street” rose from being a peddler of meat and seafood to building one of the most vibrant and successful sales-organizations Wall Street’s history can trace. Belfort’s business acumen is still appreciated in the contemporary world where his proprietary sales-training techniques and daily motivational speeches fill up rooms full of eager listeners who want to hear from the hosts mouth how he was able to make it to the top in wall street (Solomon). Born on July 9, 1962, in Queens, New York, by Jewish parents, Belfort’s interest in business developed at a young age as he started selling Italian ice and fudges to beach goers at the age of sixteen. By delivering the ice and fudges to his customers on the beach instead of them having to walk to the concession, Belfort was able to make $20,000 in one summer. Belfort was later enrolled to American University to study dental surgery but was in school of only a day before realizing it was a career path he wanted to follow. He quit his studies after one of his professors told the class that the profession no longer brought in a lot of money and therefore anyone who was in it to be wealthy had picked the wrong career (Kumar). Having acquired an early aptitude for salesmanship in addition to his ambitions, Belfort started operating a meat and seafood business in the 1980s where he made a lot of money and even had his own trucks to supply his products to customers. However, as the money came in so was his mistakes such as over over-spending, under-capitalized in addition to making critical cash flow errors. As a consequence of these business blunders, Belfort was bankrupt by age of 23 where he lost everything he owned. To have as fresh start, Belfort decided to try his luck in Wall Street even though he had a negative net worth of $10,000 from a number of trucks he had guaranteed (Belfort). Jordan Belfort’s training on how to be a stock broker came in the form of cold calling which involved making unexpected or unsolicited telephone calls to businesses to offer investments advice. He boss continually remained Belfort that he did not have what it takes to be a success in Wall Street, which made him work even harder for the six months that he was under training. However, it seems like his bad luck was still following his given that on his first day as a broker, it happened to be the Black Monday whose consequence was the firm Belfort worked for closed down (Belfort). Having no other option, Belfort took next available offer which was to join a company dealing in smaller stocks situated in Long Island. Belfort was accepted as a stock broker by the company where on his first day at the company, the ambitious broker was able to break the company’s record for amount of sales done on a single day. It is from the experience that he gained at this stage of his career that Belfort developed his most successive system for selling. He discovered that success in stock brokerage was hinged on being able to persuade and influence potential clients by sell his vision to them. Based on this experience, Belfort developed a strategy for selling which he called “straight line” and was so powerful that it could be used by anyone Belfort taught (Belfort). Belfort worked for a number of years in various brokerage firms where he continued to perfect his sales skills while also earning enough money to invest in establishing his own brokerage firm. The new firm was called Stratton Oakmont with most of the management being done by Belfort’s childhood friends such as Andrew Greene as Head of Corporate Finance Department and Kenny Greene as Stratton Oakmont’s Junior Partner. Daniel Porush was later welcomed into Stratton Oakmont as a second Junior Partner while Jordan Belfort’s father was also brought in as the Chief Financial Officer (Wilson). Belfort has over the years stuck to his proclamation that Stratton Oakmont was formed with the best of intentions, however along the way it began embracing the shady deals in the securities industry. To increase their financial clout, Belfort used another of his systems called “the pump and dump” to transform Stratton Oakmont into one of the largest and influential brokerage firms dealing in Wall Street. The pump and dump formula was among other strategies that Belfort developed during his professional career in order to manipulate stocks. The formula’s role was to provide a basis for Stratton Oakmont to inflate the public stocks of a particular company through undertaking a fake research which made it possible to sell the cheap stocks at an exorbitant rate thereby earning inflated profits (Waters). The firm acquired a reputation for making easy money for all the brokers working there. Among the recruitment policies of the firm not to depend on experienced stockbrokers and educated college graduates who had established their names as the best in Wall Street but instead went for impressionable youth straight out of high school. It is this group of stockbrokers who drove the sales a Stratton Oakmont functioning as cold callers using scripts that Belfort had drafted for them. During its peak years, employees working for Stratton Oakmont made over $200 k per year in addition to affording luxury vehicles such as Mercedes, Ferraris, and Bentleys (Belfort). One other concept that Stratton together with others in Stratton Oakmont relied on to drives sales was “Rathole” which was a code word that referred to a nominee who was specifically an individual owning shares of stock on paper was in real sense a front man that was bankrolled by the firm. Having a nominee during this period was a legal practice to the extent that proper tax obligations were being met while at the same time the arrangement with a nominee was not violating securities laws. This was the best strategy that many big firms in Wall Street were using to build stock positions in particular companies without other investors being aware. The only catch was to never acquire more than 5 percent of share from any company since going to such extent will attract a rule requiring one to file a disclosure of ownership and intentions (Remington). However, it is the way Stratton Oakmont utilized the “Rathole” technique that raised eyebrows whereby they were using some of the acquired nominees to secretly buy large blocks of Stratton new issues. This practice violated many securities laws that the SEC forcing the regulator to look for ways to establish new rules to curb the practice. However, Stratton Oakmont device new measures that exploited loop holes in the regulations. Stratton took advantage of the provision by NASDAQ that allowed the lead underwriter, instead of natural balance between buyers and sellers to determine where a stock should open. Therefore, being the lead underwriter during the time Steve Madden IPO took place; Stratton was given the rights to fix the price that the shares were going to trade. Consequently, the IPO was launched with the shares trading at $5.50 per unit. During this IPO, Stratton was able to repurchase his units from his ratholes, which resulted in him making $12.5 million in three minutes (Remington). As his wealth accumulated, Stratton adopted a lavish lifestyle where he owned high-rise apartments in Manhattan in addition to having a luxurious estate in Long Island. Drug addiction was also part of his problems at the time leading to a number of accidents a major one occurring when his 256-foot yacht sank in the Mediterranean Sea after he had refused to follow the captain’s warning of an impending storm. Earlier on, Stratton had also crashed his helicopter into his backyard due to poor judgment as he was under while under the influence of drugs. His family was also not spared from the apparent loss of control as they had a string of domestic violence with his wife accusing him of kicking her down a flight of stairs in the presence of their daughter. Following the heated argument that went on, Stratton took his young daughter with him driving without putting on her seatbelt an incident which was later used to persuade him to check into rehab (Celebrity Nethworth). As Stratton’s fortunes continued to be transformed for the period up to 1992, a number of organizations were alerted to these changes due to the increasing suspicion over how his firm conducted its business. Among such organizations is the United States Securities and Exchange Commission which began investigating allegations that Stratton Oakmont had defrauded investors and manipulated the stock market to earn higher profits. Following the hard evidence that SEC had gathered on the activities of the firm during a two-year investigative period, Stratton faced over a ten years imprisonment for various charges (Waters). Seeing that there was no way out of the legal obligations that he faced, Stratton agreed to cooperate with the authorities in the investigation of the activities of Stratton Oakmont in addition to his former colleagues as witness. Based the arrangement agreed upon, Stratton Jordan was banned from taking part in any activity in the securities industry. As for Stratton Oakmont, the firm was fined for all wrong doings followed by the opening of a further inquiry by The National Association of Securities Dealers. Following further investigations, Stratton Oakmont was ejected from by The National Association of Securities Dealers from the securities industry (Waters). Others who faced sanctions after investigations by The National Association of Securities Dealers include. Porush was also censured from taking part in the securities while also being ordered to pay a fine of $250,000 while Sanders was also censured and fined $25,000. The firm not spared as its properties were auctioned to pay $416,528 in restitution to customers in addition to being fined $500,000 (Condon). Works Cited Belfort, Jordan. Wealth Creator. “Jordan Belfort”. Wealthcreator.com, Mar/Apr 2011 Web. 30 January 2014. Condon, Nancy A. Financial Industry Regulatory Authority. NASD Regulation Expels Stratton Oakmont; Principals Also Barred. FINRA, 5 Dec. 1996. Web. 30 January 2014. Kumar, Nikhil. Jordan Belfort: The real Wolf of Wall Street. Independent.co.uk. the Independent, Friday 20 December 2013. Web. 30 January 2014. http://www.independent.co.uk/news/people/profiles/jordan-belfort-the-real-wolf-of-wall-street-9018925.html> Remington, Shake. The Wolf of Wall Street - Jordan Belfort. Player. Web. 30 January 2014. Solomon, Brian. "Meet The Real Wolf Of Wall Street In Forbes Original Takedown Of Jordan Belfort." Forbes.com. Forbes, 28 Dec. 2013. Web. 30 January 2014. . Waters, Preston. Entrepreneur of the Week: Jordan Belfort. Elitedaily.com. Elite Daily. 27 Jan. 2012. Web. 30 January 2014. Wilson, Paula. The Incredible Rise and Shocking Fall Of Jordan Belfort – The Wolf Of Wall Street. Celebrity Networth.. 27 Dec. 2013. Web. 30 January 2014. Read More