[Editor’s note: Stateless Media’s Peter Savodnik recently interviewed Joel M. Cohen, former assistant United States attorney in the Eastern District of New York. Cohen led the prosecution, in the late 1990s, against Jordan Belfort. Martin Scorsese’s new film, The Wolf of Wall Street, is based on Belfort’s story.]
SM: When did you get involved with the Belfort case?
JC: 1997. I worked on the case until I left the government in October 1999.
SM: Belfort wrote two memoirs. Terence Winter, who wrote the screenplay for The Wolf of Wall Street, says he asked FBI agents about the memoirs and was told they are mostly true. True?
JC: It depends on how you define “mostly” or “true.” Belfort does, in fact, recount stories about his criminal behavior and escapades that are consistent with what he and others told us after they were indicted and agreed to cooperate with our investigation. However, the tenor of his stories mischaracterizes his importance and creates the impression that those around him were all idiots or sycophantic worshippers of him. What is extraordinary about his books is that so many of the seemingly outlandish stories in fact happened. In his books, and in public statements and interviews he’s given recently, he draws a false comparison between his firm, Stratton Oakmont, and Wall Street. He did a bit of this when we debriefed him. From time to time, he would try to minimize the venality of his illegal behavior by saying things like, “Everyone on Wall Street does this,” or, “I’m no different than Goldman.” It is for this reason, among others, that I insisted, when he pled guilty, that he explicitly admit to all of the ways in which he and his co-conspirators boxed-the-stock — and that he acknowledge having done so in every single one of the IPOs they took public.
SM: You’re saying he pled guilty to every count?
JC: Yes. In fact, he admitted that every IPO Stratton underwrote was fraudulent from start to finish. There was no grey area involved. No subtlety. No disaggregation of responsibility.
SM: What does it mean to “box the stock”?
JC: Stratton’s principals made sure that they controlled every salient aspect of the public float in their IPOs. They controlled and falsified the messages delivered to prospective investors about the potential investment. They controlled how many shares were issued. They made sure that large quantities of stock were issued to friendly investors, whom they called “rat holes,” and then these individuals bought or sold at the direction of Belfort or one of his lieutenants. They issued cheap stock to foreign investors who, in fact, were friends posing as non-U.S. citizens so they further controlled the uptick in the stock prices in the first days after the stock went public. They cut deals with other corrupt broker-dealer firms, allowing them a piece of their illicit profits in exchange for pumping up further the prices paid by misled investors. While not all of the brokers knew all the salient features, Belfort and his partners did. The entire game was rigged.
SM: Belfort claims he only targeted wealthy people. Is that true?
JC: No. Plenty of middle-class investors were hurt. Belfort had zero regard for investors. Their lies were blatant. When disgruntled investors would call seeking explanations for a sudden precipitous drop in the value of the stock Belfort’s guys wouldn’t even respond.
SM: What kind of stocks were they selling?
JC: Most of the companies were premised upon outlandish ideas — products that made no sense, businesses that had no chances of achieving favorable financial results, bogus investment-banking recommendations from cronies working with them. Even the few companies they took public that happened to be premised upon reasonable business models — for example, Steve Madden, the shoe company — were mere coincidences. They regularly laundered the money in casinos, offshore, in banking havens, through prostitutes. It is astounding to hear Belfort tell the public in recent interviews that 95% of his acts were legal or that he engaged in mere ethical lapses. This guy literally woke up every day thinking of a new way to rip somebody off. That’s not my description. That’s what he told us and how others characterized him when we were building our case and completing our investigation.
SM: Belfort portrays himself as an innovator. Is that how you see him?
JC: What he did was nothing new. He was just brazen and got away with it. Unfortunately, his market impact magnified after his lawyers cut a deal on his behalf with the SEC.
SM: What does that mean?
JC: He described this as cockroaching. What he meant was the SEC stepped on the nest of roaches but didn’t kill them. He and his partners were able to run to other firms and continue the same behavior without being detected. Belfort and his partner agreed to part Stratton and sell their interests in the firm. The SEC permitted his accountants to value his interest in this firm at between $20 to 30 million per year, with a payout period of more than ten years. He was permitted to sell his interest in a company built on lies of no inherent value at a total value of over $300 million. For at least two years after leaving Stratton, he was paid tens of millions of dollars each year for his share in this bogus enterprise. This was approved by the SEC. Meanwhile the fraudulent IPOs continued and Belfort was able to enrich his senior associates by bankrolling their establishment of several other broker-dealer firms that worked a web of fraud at his direction. It was amazing. … We put all of them out of business too, and their senior principals all went to jail, because of the cooperation we got from Belfort.
SM: So, in the end, Belfort cooperated with the authorities.
JC: The degree of his cooperation was extraordinary. Our system rewards that—this is why his jail sentence was three and not twenty-five years. He was fortunate in having a lot to give up. This is what’s so galling about his recent assertions that he occasionally stepped over the line. People who occasionally step over the line generally don’t have a long list of others against whom they can cooperate. In contrast, Belfort’s list was huge. At one point, we were pursuing over 150 individual cases, and he was wearing a wire, recording conversations with many of his closest friends on a daily basis for months on end.
SM: How many people pled guilty in connection with Belfort’s crimes?
JC: Over one hundred. A large percentage of that figure were serious actors. Principals at broker-dealer firms, bankers and accountants operating at shadowy offshore banking havens, prominent public company executives, political figures. This is why we decided to try to flip Belfort and his senior partners. Because we believed that allowing them to reduce their sentences was worth the bargain. The media gets this wrong, asserting that because Belfort and his primary partner served less that four years each that the system failed. But it didn’t. The results speak for themselves.