Loved the movie but never understood how he was “scamming people”
Wasn’t he just selling stocks?
In: 122
He was selling stocks by hyping up their value to way way more than they were actually worth, and making a 50% commission on every share of stock he sold.
He would buy worthless stocks of companies that weren’t even worth a dollar (also called “penny stocks”). Once he had a lot of these worthless stocks sitting with him, he would have his guys cold-call people and hype up the stocks by false and misleading statements, which would make those people want to invest in them
Those people would buy a large number of the stocks ($5000 worth of stocks, in some instances). Such a large influx of buyers would drive up the stock price.
At this point he would sell his own shares of stock and cash out. Once he did that, his sales guys would stop hyping the stock up, causing the stock price to crash, and the investor to lose a huge amount of money. Imagine investing $5000 and getting 50 cents or less in return.
This is very very illegal, and is called “Pump and Dump.”
Watch “boiler room” it’s a great film with loads of now famous actors and tells you how it works.
So the first part wasn’t technically illegal.
He started by selling stocks as a stock broker. But he charged a 50% commission. So if a customer wanted to buy $5k worth of stock, they’d actually get $2.5k worth of stock and Jordan and company would pocket $2.5k. I believe that’s illegal now (well, regulated by the SEC), but it wasn’t at the time. People just didn’t read the fine print.
Then he started doing illegal stuff.
He would buy stocks pre-ipo, and then his company would be the ones to take those companies public. There’s some conflict of interest there for sure, but the legality of that was a little gray. It wasn’t blatantly illegal yet.
He would then instruct his brokers to sell the hell out of that stock. Which would in turn drive the price up higher than it had any business going. Then he would sell his shares. This is called a pump and dump. Where he bought the shares cheap, caused the price to artificially increase very quickly, then dump all the shares he held.
Now that is very blatantly insider trading. And illegal. So how he covered his tracks was through “ratholes” where he would pay people who were not in the finance world to make these transactions for him. In the movie he used his aunt in law and his friend from highschool. But in real life he needed quite a few to make it happen. Anyway this got him around the insider trading, as technically on paper, HE didn’t invest in these companies that he was pumping. He was still pumping but on paper he wasn’t dumping. Which is how he avoided suspicion.
Anyway, he couldn’t exactly take the payouts from these rathole pump and dumps to the bank. So he used a swiss bank to avoid getting caught, of course, this also means he was committing tax fraud. As he didn’t “recognize” his earnings.
The Swiss famously don’t give a shit about other countries law enforcement. So they were happy to take his money and not cooperate with the FBI. Which is why it’s still unknown *exactly* how much he made. Jordan has kind of hinted he made more than the $200 million they caught him on.
Anyway. That’s pretty much the jist of it. He used random people to buy stocks cheap, he used his position as the head of a brokerage firm to pump up the value of those stocks, then he sold them. That’s insider trading, and to cover his insider trading he also had to commit tax fraud.
Obviously there was other stuff like drugs and prostitution and destruction of property that also happened. But I assume you’re only asking about the financial crimes.
You can simplify this way more than the top few answers I saw.
He lied. He told people stocks were better than they were and any other thing he could think of because he made money for selling stock, not the performance of it. Up down, it didn’t matter, as long as he was selling.
If you’d like to watch another movie along the same lines, I’d suggest “Boiler Room”. Same thing – guys who buy cheap stocks, pump up them up so they sound fabulous, load up on suckers who’ll buy them, and sell them the stocks at outrageous commissions and/or markups.
For example, say Joe Smith started a real firm, JS Scientific, trying to make money on some new scalpel. After the firm fails, these guys would buy up all the stock, maybe change the name, maybe not, and then make up a story about it, call their suckers, and unload the stock they bought for pennies for a couple of dollars a share.
I actually played pickup hockey for a couple of years with some guys who did this in Toronto. I asked once “How can you do that? Aren’t you just ripping people off?”, and the guy looked me at, completely honest: “If they’re so stupid as to buy stock over the phone from some guy who just called them up, they don’t deserve to keep their money.”.
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