Jordan Belfort, a former stockbroker who ran the now-defunct US brokerage firm Stratton Oakmont back in the 1990s, reflected recently on his drug-drenched, hard-partying past life from the tranquillity of a suite at the Four Seasons hotel in Hong Kong. Stocky and with a tattoo on one arm, he looks like a boxer — though maybe a bit tired after a day jam-packed with media interviews.
Belfort was convicted of money laundering and securities fraud in 2004, and jailed for 22 months after defrauding investors to the tune of $200 million. He was sentenced to four years imprisonment but was released early on good behaviour.
His life story, which is vividly depicted right down to the lurid details in a 500-page memoir, will be portrayed in an upcoming movie directed by Martin Scorsese. Leonardo DiCaprio will play the lead role in the biopic, which is due for release next year. DiCaprio beat Brad Pitt in the bid for the part and Belfort is happy that the former Titanic star is playing him.
“I’m a Leo fan. Brad Pitt’s too old. I’m in my 20s in the book. I think Leo’s the best,” he said. But, he added, “if there’s one person I thought was perfectly suited if he was younger — that would be Robert Downey Jr”.
At the peak of his notoriety, Belfort infamously sank a 170-foot yacht as he set sail amid a Signal 8 storm, imbibed a potent cocktail of drugs, battled a self-destructive addiction to quaaludes, slept with countless hookers and organised a midget-throwing competition.
Now 49 and reportedly sober, Belfort contemplates how and why such unbridled excesses took place, and whether they are endemic to the banking industry.
“What happened in my company, there was a mob mentality ... people acted in ways they would not usually act in,” said Belfort. “If it was just a few of us, we wouldn’t have been throwing midgets around or having sex under the desk.”
He went on to suggest that dysfunctional behaviour usually emanates from the highest echelons within a corporation. “At the heart of it is the culture. If you look at any company that is out of control ... it’s coming from the very top, [the management] which allowed the culture to exist,” said Belfort.
In the wake of a series of recent financial scandals, including the $2.3 billion loss made by a so-called rogue trader at UBS, Belfort’s words resonate.
But these days he doesn’t spend his time pondering the ethical breakdowns of Wall Street. Instead, he earns his money as a motivational speaker and by giving budding entrepreneurs courses on how to get rich (ethically).
However, he continues to trade his own money and brags that he has “made a fortune shorting Chinese stocks”, particularly Sino Forest, whose CEO and founder Allen Chan recently resigned amid allegations of fraud.
While Belfort noted that there are some “great” companies in China, he claimed the market is also littered with firms that have destroyed shareholder value, inflated revenue numbers and employed shady accounting practices.
Even big-time investors have not escaped unscathed, with Hank Greenberg having been burnt by Nasdaq-listed China MediaExpress Holdings. Still, many short-sellers have profited. Belfort notes that Muddy Waters — the research firm run by Carson Block that issued reports on Sino Forest and other Chinese companies — is a “small short seller but a good research house” and that there are people in the market who take “far bigger positions”.
“There’s a group of sophisticated short sellers out there, doing forensic research to show these companies are not what they are,” said Belfort.
Belfort ought to know a thing or two about stock manipulation. At the height of his career, Stratton Oakmont was bringing companies such as shoe retailer Steve Madden public and Belfort had an army of salesmen aggressively pushing stocks to clients.
Unbeknown to the public, Belfort had his hands on IPO stocks and hid them in nominee accounts. Due to the limited supply in the market, these new issues soared quickly. Belfort later sold out at a massive profit and, subsequently, those stocks plunged. While his modus operandi has been widely described as a “pump and dump” scheme, by Belfort’s account he wasn’t guilty of that.
“What I was doing wasn’t purely ‘pump and dump’. What I was doing was free riding — putting new issues into the accounts of close friends, nominees. I wasn’t jacking the stock up. The rest of the street was,” he said.
”The real crime was actually withholding supply. There are two sides to any manipulation — supply and demand. If you want a stock to go up, you either create demand — a lot of demand — or withhold supply,” he added.
According to him, Wall Street is teeming with instances where banks have allocated hot IPOs to big corporate clients in quid pro quo arrangements, which tilts the playing field against the regular investor.
“It happens all over Wall Street. It’s very common with new issues, he said. “They said: ‘Do your investment banking deals through me so I can generate fees and I will give you blocks in new issues.’ They were giving their preferred clients big inside deals on new issues that were going up,” said Belfort.
‘Pump and dump’ schemes still exist today, noted Belfort, though the game has changed slightly, with internet chatrooms and emails being used to jack stocks up.
Belfort’s stock manipulation finally came to an end when the FBI nabbed him, based on a tip from a Swiss banker who was laundering money for Belfort. His view of the US Securities and Exchange Commission, which had chased him unsuccessfully for years, is scathing.
“It’s an unbelievably ineffective agency. They try to beef up, but people would rather work in the attorney general’s office. My view is it should be eliminated and merged with the US attorney or FBI, which is a better run organisation,” said Belfort.
Excesses are still rife on Wall Street — from procuring hookers to rampant drug use — but Belfort quipped that today’s bankers are not quite up to the standards of his inglorious past. “I don’t think people are tossing midgets about these days.”
Belfort resides in Los Angeles and was in Hong Kong for the first time this week to kick off his tour in Asia.