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Meet The Real 'Wolf Of Wall Street' In Forbes' Original Takedown Of Jordan Belfort

Dec 28 2013, 11:31am CST | by

Meet The Real 'Wolf Of Wall Street' In Forbes' Original Takedown Of Jordan Belfort
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Martin Scorsese’s “The Wolf Of Wall Street” is a raucous bacchanalia of sex, drugs, and money on Wall Street that focuses on the excesses of Jordan Belfort’s career at over the counter brokerage house Stratton Oakmont. Scorsese and lead actor Leonardo DiCaprio seem less interested in the true facts of Belfort’s life and actual details of his securities crimes than in showing off more and more lewd behavior. But the movie does correctly feature one of the first public takedowns of Belfort and Stratton Oakmont in a 1991 issue of Forbes magazine.

While staff writer Roula Khalaf (now foreign editor at the Financial Times) didn’t christen the term “The Wolf Of Wall Street,” she did call Belfort a “twisted Robin Hood who takes from the rich and gives to himself and his merry band of brokers.” Khalaf describes the business model as “pushing dicey stocks on gullible investors” and noted the already growing challenges from federal investigators. You can read the full text below.

Steaks, Stocks — What’s The Difference?

October 14, 1991: By Roula Khalaf

AT 23, Jordan Belfort was peddling meat and seafood door-to-door on New York’s Long Island and dreaming of getting rich. Within months, he was running a string of trucks, moving 5,000 pounds of beef and fish a week. But he expanded too quickly on too little capital. By the time he was 25, he filed for personal bankruptcy.

“I was pretty talented,” shrugs the smooth-talking Belfort, now 29. “But the margins were too small.”

Looking for a product with more fat in it, Belfort founds stocks. Steaks, stocks — from a hustling salesman’s standpoint, what’s the difference? Today Belfort’s two-year-old Stratton Oakmont brokerage, operating out of Lake Success, N.Y., specializes in pushing dicey stocks on gullible investors. And, while the product may be as perishable as meat and fish, the margins do appear quite handsome. Stratton’s total commission revenues should hit $ 30 million this year. The firm now boasts nearly 150 brokers. Belfort, who owns over 50% of Stratton’s equity, may have personally made $ 3 million last year alone.

Belfort’s customers, on the other hand, haven’t always shared in this prosperity. A year ago, even before customers began lodging complaints, the Securities & Exchange Commission started investigating Stratton Oakmont’s sales and trading practices. Subpoenas have been issued to a number of Stratton Oakmont’s former brokers. Belfort confirms the investigation and says the firm is cooperating fully.

The Queens-born son of two accountants, Belfort earned a biology degree from American University. After failing in the meat business, he learned the stock brokerage business at a succession of shops — L.F. Rothschild, D.H. Blair and F.D. Roberts Securities. His postgraduate work came at Investors Center, the 850-broker penny stock house, where he went to work in 1988, and which was shut down by the SEC a year later.

In 1989 Belfort teamed up with 23-year-old Kenneth Greene, an Investors Center graduate who had occasionally driven one of Belfort’s meat trucks. In early 1989 the lads opened an office in a friend’s car dealership in Queens, then set up a franchise of Stratton Securities, a minor league broker-dealer. Within five months, Belfort and Greene had earned enough in commissions to buy out the entire Stratton operation for about $ 250,000. As Belfort’s righthand man, Greene owns a 20% stake in Stratton Oakmont.

To push his stocks, Belfort hired the same kind of motivated young salesmen who had driven his meat trucks. He taught them his trusted cold-calling technique, the “Kodak pitch.” That is, the first tout is not some obscure over-the-counter issue but a blue chip, often Eastman Kodak. Only after an investor takes the blue-chip bait do Belfort’s brokers pitch the higher-margin garbage. A former Stratton broker recalls Belfort’s motto: “Whip their necks off, don’t let ‘em off the phone.”

Belfort’s brat-pack brokers quickly came to idolize him. One 28-year-old broker is said to have gone from laying carpets to earning gross commissions of $ 100,000 his first month, $ 800,000 his first year. He got to keep about half of that. On average, Stratton Oakmont’s brokers make around $ 85,000 a year.
Sounding like a wet-eared version of New Jersey’s great penny stock salesman Robert Brennan, Belfort says he’s helping his clients invest in America’s future. “To me, the most important thing is to get involved in fundamentally sound companies, earnings-based companies,” he says.

Ventura Entertainment Group is a good example of Stratton Oakmont’s merchandise. A North Hollywood, Calif.-based maker of TV movies, Ventura is the successor to a 1988 blind-pool offering. Belfort started pushing Ventura almost from day one, and last year underwrote a secondary issue for the company. At the time of the offering, Ventura was coming off a year when it lost $ 455,000 on revenues of $ 3 million.

The fellow behind Ventura is 52-year-old Harvey Bibicoff, whose previous company was electronics retailer Discovery Associates. Under him, the company, now called Leo’s Industries, racked up huge losses (FORBES, Nov. 26, 1990).

Belfort’s game is more than just one of collecting commissions and underwriting fees. Look at the Ventura secondary, for example. Last year Stratton Oakmont sold 400,000 Ventura units (one share and one warrant) for $ 12 each. The shares jumped to $ 15, and Belfort told his brokers to quickly buy back the warrants for $ 1 each from pleased investors, while continuing to push the stock. Within months, Belfort unloaded most of the warrants on investors for $ 10 — a 900% profit. The recent price of Ventura’s shares (after a 2-for-1 split): 63 cents. Cynically, Belfort now concedes that Ventura was a good story, but “a story only lasts for so long.”

And then there was Nova Capital (now called Visual Equities), an art-investment company controlled by Alvin Abrams, the 56-year-old president of penny stock underwriter First Philadelphia Corp. — a man whose past includes repeated censures and fines by the SEC and the National Association of Securities Dealers, dating back to the 1960s. In 1989 Belfort acquired a block of Nova warrants for $ 1 each. He exercised the bulk of his warrants at $ 2.50 to $ 2.75 and retailed out the stock to investors for $ 5. Stratton brokers continued to tout the shares. The price rose above $ 9. As the stock went up, Belfort exercised more warrants and sold the shares. (The stock has since fallen to $ 3.) By one estimate, these and other warrant deals have earned Stratton upwards of $ 10 million over the past two years.

Many Stratton Oakmont stocks — including DVI Financial and Ropak Laboratories — have taken a pounding in recent months as word of the SEC investigation spread. But having made a killing from his warrant deals, Belfort appears unwilling to use the firm’s capital to support the stocks. Sounding like a kind of twisted Robin Hood who takes from the rich and gives to himself and his merry band of brokers, Belfort justifies his record this way:

“We contact high-net-worth investors. I couldn’t live with myself if I was calling people who make $ 50,000 a year, and I’m taking their child’s tuition money.”

Approaching 30, Belfort seems to have it made. He drives a $ 175,000 Ferrari Testarossa, and says he’s taking it easy and looking to use Stratton to diversify into other businesses. Recently, for example, he bought an option to purchase a 15% stake in Judicate, a publicly traded, Philadelphia-based arbitration firm. Judicate — 1990 losses $ 814,000, on revenues of $ 1.9 million — made news last summer when it landed a contract with the NASD to settle disputes between brokers and clients. The way things are going, Belfort is going to need all the help he can get dealing with Stratton Oakmont’s roster of burned clients.

Follow Brian Solomon on Facebook and Twitter.

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Source: Forbes

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