The Wolf of Wall Street was a popular movie in 2013 and was actually based on a book written by the man who lived the story (the very wolf himself), Jordan Belfort. It’s a true story about corruption and greed. Jordan Belfort ran a brokerage firm named Stratton Oakmont where he essentially conned investors out of hundreds of millions of dollars.
This con was different from Bernie Madoff’s scheme where he literally stole money from investors by way of lying to them. This was a case where the Wolf of Wall Street sold actual stocks but in a way that drove up the price in an unwarranted fashion.
The market is based on a willing buyer and a willing seller. However, this was a case where the willing buyer was being convinced to buy a stock that they (most likely) had no background or real reference on or were coerced and ”sold” into taking action.
So these investors did actually own shares of different companies. It just so happened that these companies weren’t worth what they were paying and, even worse, Belfort’s firm had a stake in the position. So he’d inflate the price artificially in order for his holdings to appreciate in value.
Now, for those who have seen the movie, you’re probably thinking about the complete and utter debauchery that took place during Stratton Oakmont’s reign, but there’s a bigger lesson to be learned here. That wasn’t the first time, nor was it the last time that this scheme has been carried out. In fact, this scheme/scam/tactic dates back to the 1920s when Radio Corp of America (RCA) which saw its shares jump from under $100 in early 1928 to more than $500 before the crash of October 1929.
What pushed it up so high? A group of investors dubbed the “Radio Pool,” who bought and sold among themselves to build a ticker-tape record of rising prices and volumes in the stock. It was legal back then, but such practices drew extreme skepticism after the market crash; they were outlawed in the 1930s.
Most likely, you hear these stories and think to yourself, “Geez, that’s terrible. This would never happen today.” And to some extent you’re right. Securities laws and regulations are much more strenuous these days than they were in the past. Even from the recent past during the Wolf of Wall Street’s (Jordan Belfort) days.
However, these types of stock manipulating schemes still exist today. Granted they are in different forms than the boiler rooms full of slick brokers smiling and dialing the phones all day.
These days, you’ll see random emails promoting “the next Microsoft” or the stock that’s “about to explode so get in early!”
These are situations you want to be very wary of. You may think it’s ridiculous to hear us say this, but if you get an email from someone promoting a random “hot stock” that you’ve never heard of, don’t just go buy the stock at your local broker’s shop.Unfortunately, this actually happens!
Just look at social networking site, Cynk Technology. In 2014, this stock rose from 6 cents to almost $22 per share! This week, it was trading at 10 cents. The buzz for the stock was generated over Twitter. Clearly these schemes still exist today, and that’s why it’s important to be cognizant of where you get your financial advice.
We suggest you have a trusted advisor who knows you and your situation, and who doesn’t pitch you any "get rich quick" stocks or ideas. Often times, boring is way better than super sexy and exciting. While watching an investment move from 6 cents to 22 dollars is really exciting, you don’t want to be the one left holding the bag at 10 cents.
We built Wela in a way that provides you with the access to sound financial advice. We do not offer fly by night, hot stock picking, or get rich quick schemes. We believe in sound, personalized investment advice that best suits your situation and goals. You can learn more about it by creating your free account here.