Investor's Watchdog.com: Stock, finance and investment protection for investors

Jordan Belfort was featured in a frontpage CNN.com story on Friday.  In recognition of what Belfort can teach us about the securities industry, we are reprising a post from November of last year:

Jordan Belfort’s memoir The Wolf of Wall Street is NC-17 rated; but the truth is sometimes vulgar.  Belfort built Stratton Oakmont into one of the most infamous broker-dealers ever to stain FINRA’s membership list.  Both before and after being barred from the securities industry, he was the moving force behind several other firm’s, receiving millions per year for funding their operations.The story of Belfort’s personal life would consume a month of Jerry Springer shows.  But his story from the wrong side of the law reveals truths that otherwise would remain hidden to most.   

You may have seen episodes of 48 Hours or 60 Minutes in which the correspondents interview people who formerly made their living by burglary or robbery.  You pay close attention because you know you are learning from a knowledgeable teacher.  Belfort’s book teaches us several things about brokerage firms.  

They Don’t Fear the Cops 

Belfort thumbed his nose at the SEC, FINRA (then the NASD), and even the U.S. Attorney’s Office.  He violated the law for years, laundering money, manipulating stock prices, and bludgeoning his customers with high pressure sales tactics, all while SEC examiners sat in the Stratton conference room with Belfort listening to every word of their conversations through a bug he installed for that purpose.  

Law abiding people feel constrained by the law; the threat of arrest and imprisonment keeps them well away from the line that marks the dividing line between legal and illegal conduct.  The people who put investors at risk don’t feel that way about the law.

If the Speed Limit is 55, How Fast Do You Drive?

Too many brokers think of the securities laws as speed limit signs.  They know that a violation below a certain threshold is not likely to stir the state trooper from his spot in the median.  They also know that a violation above a certain threshold, while it is likely to result in a traffic stop, is unlikely to lead to loss of their license.  They have a keen understanding of how much they can get away with, and they take full advantage of that cushion.  Every mile per hour above the speed limit means more money in the door. The Wolf of Wall Street tells the story of a broker-dealer willing to fly down the interstate breaking every rule of the road.  That Stratton was able to operate for seven years, most of it under intense regulatory scrutiny, taking advantage of its customers every single day, should awaken the investing public to just how little protection the regulators are able to deliver. 

The SEC staff is talented, smart, and motivated.  But the task before them is more massive than you can possibly appreciate, and the tools (laws) with which they work are sometimes inadequate to the task.  Read The Wolf of Wall Street if you want to understand the forces lined up against you.  If you are a senior citizen or baby boomer, hire private investor protection or risk losing your nest egg to those forces.