The Ethics Behind "The Wolf of Wall Street" (1990s)

Stratton Oakmont Inc. logo

Controversy
This man is known for being part of one of the biggest business fraud scandals of all time and was once known by some as the “Wolf of Wall Street”. His name is Jordan Belfort and he started the stock brokerage company Stratton Oakmont, a penny stock company he ran in the 1990’s. This company at one point employed over 1,000 brokers, well this was before the company was shut down by the Securities and Exchange Commission and Belfort was arrested by the FBI in 1998. But, this was not the first time the company has been charged for these types of criminal charges. In 1994 Stratton Oakmont settled a civil securities fraud lawsuit with the Securities and Exchange Committee (SEC). The firm paid a fine in the amount of amount of $2.5 million. Along with that Belfort and his partners, Daniel Porush, and Kenneth Greene, agreed to $100,000 fines apiece. “None of the three admitted or denied the SEC’s allegations in the settlement”. But, in 2003 Greene pleaded guilty to criminal charges involving another fraud scandal. As far as Belfort when indicted in 1998 he was banned for life from the securities industry. Now let’s get into what exactly what the company did to make there fortune and how it was all so simply yet so complex. The company Stratton Oakmont would gather shares of penny stocks which are not highly traded in the market, which then they would stockpile these stocks in secret accounts. Then salesmen would work on the phones busily to make the price of these stocks progressively grow by advising people purchase these stocks. At this time Belfort and his partners would sell their own shares making a huge profit and then the stock would crash and this was done over and over again. “The government alleged that he defrauded investors of more than $200 million dollars. Once being arrested for this Belfort was convicted of money laundering and securities fraud in 2003, which he was sentenced a four year prison sentence, to which only served 22 months”. This is the least of Belfort’s problems he was also sentenced to repay an amount of $110.4 million to a victim compensation fund in a form of restitution. Now to understand why what Belfort and Stratton Oakmont was doing was ethically wrong let’s take a look of how they stand against the four central theories of ethics: individualism, utilitarianism Kantianism, and in conclusion virtue theory.

Individualism

The theory of individualism which was established by Milton Friedman states that the goal of a business is to solely make a profit, in order to do that the obligation of a business person is to maximize profit for the owner and the stockholders. Through the eyes of this theory Jordan Belfort’s action would be considered unethical. Do to the charges pressed against the firm, its partners, and the owner the company no longer exists so the obligation of maximizing a profit no longer exists. Along with the company falling apart Belfort has to pay an amount of $110.4 million dollars in restitution which puts him at a dramatic loss compared to the income him and his firm once accumulated.

The Wolf of Wall Street, the movie
following Jordan Belfort through his scandal,
played by Leonardo DiCaprio

Utalitarianism

John Stuart Mills, one of the main backers of the utilitarianism theory, says that happiness and pleasure are the only the things of inherent value and people should bring about these feelings since it is something all people are capable of feeling. To help understand Utilitarianism it can help to weigh the pros and cons of each of the main stake holders. In the case of Stratton Oakmont the most important stake holder would be its clients. Stratton Oakmont’s obligation to their clients was to advise them into making smart financial decisions about what stocks to invest in, in order to make a profit on their return. But, instead they advised people to invest in stocks that they knew the company had accumulated shares and by purchasing the recommended stocks the price of that stock would increase. So once the price was high enough Jordan and his partners would sell the stock for a massive profit, leaving the people they were supposed to help, out thousands of dollars. The next stakeholder would be the employees of Stratton Oakmont who did benefit and gain happiness from the illegal activities of the firm and were able to make a good deal of money from the work they were doing. But in the end this happiness that came from the companies left these people without jobs due to the company is shut down, and some even having criminal charges pressed against them.  The final stakeholder would be Jordan Belfort and his partners who lived a lavish life from millions of dollars there were making illegal or not these men were certainly happy. But, now most are in prison or like Belfort paying back the millions of dollars he took from people by being dishonest.  So in the end what they did was unethical because there actions led to their clients being unhappy form the fact they lost thousands of dollars to dishonest people. Now the same dishonest people are suffering from the hardship to which they brought onto the people they were hired to help. So in the end when looking at this theory their actions were unethical and led to no one being able to say the outcome brought happiness or pleasure.

Kantianism

The next theory was developed by Immanuel Kant which involved people having consistent actions and think sensibly, but at the same time help other make those same rational decisions and respect people differences and needs. This theory also states that these actions should be motivated by goodwill, or doing what is right because it is right. What Belfort did with Stratton Oakmont goes completely against this theory, instead of looking out for others and helping people invest their money in a financially responsible and smart way Belfort tricked and deceived these people. Instead he had them invest in stocks that he knew would crash and destroy their investment and would benefit him dramatically financially to support his extravagant life style. By doing this did he not only make irrational decisions he made the people he employed make these same irrational decisions to help his company grow. He taught them to do whatever it took to make money and even if it meant illegal activity and being untrustworthy to the many clients they represented and advised. Belfort could have helped people invest their money into stocks that could have brought great returns and taught his staff of over 1,000 employees to do the same but he didn't. He looked for his own best interest and people who follow Kantianism would realize that the actions of Belfort and Oakmont Stratton were unethical.

Jordan Belfort, now an author and motivational speaker

Virtue Theory

Finally we have the Virtue Theory which follows four characteristic that makes an action ethical or unethical. These characteristics consist of courage, honesty, trust, and justice. Belfort’s actions clearly show that he has not been courageous in the least bit he tricked and lied to people in order to make his life better and made huge financial gains by taking from the wealth of others. The courageous thing to do would have been to run a honest and well respected firm that prided themselves on giving people smart financial advice on their investments and giving them a great return on their money so that there future wouldn't ruined by financial setbacks in which he did by acting unethically. When it comes to honesty and trust that were Belfort mad his biggest ethical lapse again he tricked people lied to them about businesses saying that they were worth investing in and would benefit them, knowing that they would eventually plummet and take money out of honesty people pockets who may be trying to save for retirement, or their children’s education. As far as justice which in these terms would be hard work, quality services, good ideas, and fair practice it was nonexistent. Yes, Belfort worked hard at deceiving people and making sure that this illegal money could not be traced by placing it in secret accounts he did not work hard to benefit his clients. He gave them terrible advice and services which destroyed some people financially. The only justice served is the fact that Belfort must pay back all of this money in restitution in an amount of $110.4 million which again who know when that amount will be paid back in full and all the time it takes to do so is taking months, days, and years away from the people who could have been financially set today.

Now after going through the core theories of ethics, it is apparent that Jordan Belfort and Oakmont Stratton cannot be considered a person or company that exhibits the values of each theory. Oakmont Stratton is now out of business and does not maximize the profit of it stakeholders. The company many have allowed the Belfort, his partners, and employees to full potential of happiness for the time being, but there clients they advised absolutely did not. Finally, Belfort and his employees were dishonest to their clients not allowing them to make rational financial decisions while exhibiting qualities that oppose how an ethical company should be run.

References

Kolhatkar, S. (2013, November 7). Jordan Belfort, the Real Wolf of Wall Street. Bloomberg Business 

     Week. Retrieved April 1, 2014, from http://www.businessweek.com/articles/2013-11-07/jordan-

     belfort-the-real-wolf-of-wall-street#p2

Shapiro, J. (n.d.). My life working for the real 'Wolf of Wall Street'. New York Post My life 

     working for the real Wolf of WallStreet Comments. Retrieved April 1, 2014, from 

     http://nypost.com/2013/12/08/former-stock-pusher-reveals-life-in-wolf-of-wall-street-boiler-room/