The messy world of stockbrokers: "The Wolf of Wall Street" and the lessons learned

Martin Scorsese 2013 film "The Wolf of Wall Street" offered a shocking and entertaining glimpse into the glamorous yet highly immoral world of young stockbrokers. Leonardo DiCaprio plays Jordan Belfort, who, along with his accomplices, built an empire based on fraud, manipulation and unbridled greed. The film captivated audiences with its wild parties, lavish lifestyle and dubious business tactics.

Although The Wolf of Wall Street is a work of fiction, it is based on real events and raises important questions about ethics and regulation in the investment world. Are the schemes depicted in the film still possible today? What measures have been taken to prevent similar frauds? And most importantly, what can investors learn from the film to protect themselves from fraud and make wise investment decisions?

In this article, we dive deeper into the world of "The Wolf of Wall Street" to analyse the film's central themes, such as pump and dump schemes, insider trading and stock price manipulation. We take a closer look at how these schemes work, what their consequences are and how investors can protect themselves against them. The aim is to raise readers' awareness of the risks involved in investing and to offer practical advice on safe and ethical investing.

1. The "Pump and Dump" scheme: a mirage of get-rich-quick schemes

One of the central scams in "The Wolf of Wall Street" is the "pump and dump" scam. It is a manipulative tactic where crooks artificially inflate ("pump") the price of low-value stocks by spreading misinformation and creating artificial demand. When the price has risen high enough, they sell ("dump") their shares, leaving other investors at a loss.

In the film, we see how Jordan Belfort and his team use aggressive sales tactics and misinformation to persuade people to invest in the shares of unknown companies. They create the illusion that these are fast-growing and successful companies, leading to a surge in share prices. But when the fraud is exposed, the price plummets and investors lose their money.

Although "pump and dump" schemes have been around for a long time, they are still a threat today, especially in the age of the internet and social media. Scammers can spread information and find victims faster and easier than ever before. That's why it's important to be careful when investing and not to believe everything you read or hear.

How to protect yourself?

Do the research: Before investing, carefully study the company and its financial situation. Don't just trust advertising or rumours.
Be sceptical: If you are offered an investment that seems too good to be true, it probably is.
Beware of unknown companies: Only invest in companies about which you have sufficient information.
Follow the regulatory authorities: The Financial Supervision Authority and other regulatory authorities provide information on investment fraud and help victims.

2. Insider dealing: an unfair advantage

In addition to "pump and dump" schemes, The Wolf of Wall Street also deals with insider dealing. Insider dealing is an illegal transaction in which a person uses confidential information obtained by virtue of his or her position or other connection to buy or sell shares. This gives them an unfair advantage over other investors who do not have access to the same information.

In the film we see how Jordan Belfort and his colleagues are using their position at Stratton Oakmont to gain access to confidential information about the companies in which they invest. They use this information to unlock their positions before the information becomes public, thereby making huge profits.

Insider dealing is illegal because it undermines investor confidence in the markets. If investors feel that the market is manipulated and that they are not on a level playing field, they are less likely to invest. This harms the whole economy.

Legislation and regulations:

In most countries, including Estonia, there are insider trading strictly prohibited. The Financial Supervision Authority monitors the market and investigates suspicious transactions. Insider dealing can lead to heavy fines and even prison sentences.

How to recognise insider dealing?

Recognising insider dealing is difficult because it often takes place in secret. However, there are some signs that may indicate insider dealing:

Unusually large transactions: If someone buys or sells an unexpectedly large amount of shares, this could indicate that they have access to confidential information.
Unexpected movement in share price: If the share price moves unexpectedly and without a clear reason, this could be a sign of insider dealing.
Transactions before the publication of important news: If someone buys or sells shares shortly before the publication of important news, this may indicate that they have access to confidential information.

Insider dealing is a serious problem that undermines investor confidence in markets. It is important that investors are aware of the dangers of insider dealing and know how to protect themselves against it.

3. Manipulation and fraud: smoke and mirrors in the stock market

"The Wolf of Wall Street" also gives us an insight into how share prices are manipulated and how. fraud runs through the whole system. In the film, we see how Jordan Belfort and his team use a variety of tactics to create artificial demand for shares and thus inflate prices.

One of their favourite tactics is spreading false information. They create a positive impression of companies by spreading rumours and misinformation about their future success. This leads investors to believe that the shares are valuable and that their price will rise further in the future. In reality, however, they are often worthless or even non-existent companies.

In addition to misinformation, they also use aggressive sales tactics. They put pressure on potential investors to make decisions quickly, leaving them little time for reflection and research. This tactic is particularly effective with inexperienced investors who panic easily and make hasty decisions.

Supervision and penalties:

Fortunately, manipulation and fraud in the stock market do not go unpunished. The Financial Supervision Authority and other regulatory authorities monitor the market and investigate suspicious transactions. Manipulation and fraud can result in heavy fines and even prison sentences.

How to protect yourself?

Be wary of overly optimistic promises: If you are promised a quick and risk-free return, you are probably being scammed.
Do the research: Before investing, carefully study the company and its financial situation.
Don't let yourself be pressured: Don't make investment decisions in haste. Take time for reflection and consult a financial adviser if necessary.
Follow the warnings of regulatory authorities: The Financial Supervisory Authority and other regulatory authorities regularly issue warnings about investment fraud.

"The Wolf of Wall Street shows us how easy it is for investors to fall victim to manipulation and fraud. It is important to be aware of these tactics and to know how to protect yourself. In the next section, we will look at the ethical aspects of the film and discuss what lessons investors can take away from the story.

4. Ethics and morality: is getting rich at any cost justified?

"The Wolf of Wall Street is not just a story of fraud and manipulation. It's also a story about ethics and morality - or rather the lack of them. Jordan Belfort and his associates live a life of luxury built at the expense of other people. They don't care about their clients or their financial wellbeing, only their own enrichment.

In the film, we see Belfort and his crew enjoying their wealth by throwing wild parties, taking drugs and living unbridled. They feel no remorse for their actions, but rather see themselves as successful businessmen.

This behaviour raises important ethical questions. Is enrichment at all costs justified? Is it right to sacrifice other people's well-being for your own gain? And what are the long-term consequences of such behaviour?

In the film, we see that the actions of Belfort and his accomplices will not go unpunished. Eventually, the law will catch up with them and they will have to answer for their actions. It shows that, while immoral behaviour may bring short-term success, it has long-term negative consequences.

Ethical principles of investing:

Investing is not just a way to make money. It is also a responsibility. Investors have a duty to act ethically and responsibly, taking into account the impact of their actions on other people and society as a whole.

Some ethical principles for investing:

Ausus: Investment decisions should be made fairly and transparently.
Justice: All investors should have equal access to information and markets.
Responsibility: Investors should be responsible for the consequences of their actions.
Care: Investors should consider the impact of their actions on other people and the environment.

"The Wolf of Wall Street shows us what happens when ethics and morality are forgotten. It's a warning to all investors that money isn't everything and that ethics are as important as financial knowledge when it comes to investing.

5. Lessons for investors: How to avoid the "wolf" trap?

"The Wolf of Wall Street is undoubtedly an entertaining film, but it also offers valuable lessons for investors. It shows how easy it is to fall victim to fraud and manipulation, especially when the temptation to get rich quick is strong.

Here are some key lessons investors can take away from the film:

If something seems too good to be true, it probably is. Don't be fooled by promises of fast and risk-free returns. Investing is always risky, and the pros and cons should be carefully weighed up before making any decision.
Do your research. Before investing, look carefully at the company, its financial situation and future prospects. Don't just rely on advertising or rumours. Use reliable sources and consult a financial adviser if necessary.
Don't let yourself be pressured. Don't make investment decisions in haste. Take time to reflect and consider all the options. If someone pressures you to make a decision quickly, it is often a sign of fraud.
Beware of unknown companies. Only invest in companies about which you have sufficient information. Avoid investing in companies that are new to the market or whose business model is unclear.
Follow the warnings of regulatory authorities. The Financial Supervisory Authority and other regulatory authorities regularly issue warnings about investment fraud. Be aware of these warnings and follow their advice.
Diversify your portfolio. Don't put all your eggs in one basket. Split your investments between different assets to reduce risk.
Invest for the long term. In the stock market, short-term fluctuations are normal. Don't panic if the market falls. Long-term investing is the best way to build wealth.

"The Wolf of Wall Street shows us that the world of investing can be full of temptations and pitfalls. It is important to be aware of the risks and make informed decisions. By following these simple tips, you can reduce your risk of falling victim to fraud and invest successfully.

Summary

"The Wolf of Wall Street is a gripping film that offers a glimpse into the underbelly of the investment world. It shows us how easy it is to fall victim to fraud and manipulation, especially when the temptation to get rich quick is strong. The film raises important ethical questions and provides valuable lessons for investors.

It is important to remember that investing always involves risk. Before making any decision, you should carefully weigh up the pros and cons and do your research. Don't be blinded by promises of quick and risk-free returns.

Heed warnings from regulators and beware of unknown companies. Diversify your portfolio and invest for the long term. And most importantly, remember ethical principles. Investing is not just a way to make money, it is also a responsibility.

I hope this article helped you to better understand the film "The Wolf of Wall Street" and its lessons. Be careful when investing and make wise decisions!