'Wolf of Wall Street' Viewed Through a Litigator's Lens

, New York Law Journal

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A discussion of 'The Wolf of Wall Street'  at Cardozo Law School Wednesday
Litigators gathered to share insights into the legal story of the 'The Wolf of Wall Street' at Cardozo Law School Wednesday night. On the first panel were, left to right: Theodore E. Tsekerides, a partner with Weil, Gotshal & Manges; Steven B. Caruso, a partner with Maddox, Hargett & Caruso; Jonathan Henes, a Kirkland & Ellis partner and moderator of the panel; Josephine Wang, general counsel of the Securities Investor Protection Corporation, and Matthew Cantor, chief general counsel and executive vice president of Lehman Brothers.

Despite outrageous displays of greed, wealth and excess, "The Wolf of Wall Street" movie "played down the sex and drugs" at Stratton Oakmont and portrayed the inexperienced young brokers who ran the shuttered investment firm's illegal pump-and-dump scheme as more innocent than they actually were, its former attorney said.

"They surely knew what was going on," said Ira Sorkin, a partner at Lowenstein Sandler who represented Stratton Oakmont through years of investigations and litigation.

Sorkin spoke at Benjamin N. Cardozo School of Law Wednesday night at a panel discussion that was a de facto reunion of lawyers who participated in the case from all sides. One panel focused on how the Long Island brokerage firm, which defrauded investors of $200 million, was investigated and prosecuted. Another explored the company's liquidation under the Securities Investor Protection Act.

Moderators were Kirkland & Ellis partners Jonathan Henes, who focuses on restructurings, and Robert Khuzami, a former enforcement director for the Securities and Exchange Commission.

Sorkin said he got a call from Stratton Oakmont founder Jordan Belfort—portrayed by Leonardo DiCaprio in the film—as early as 1989, when the brokerage firm had just 10 employees. Sorkin briefly sent a colleague to Long Island to advise Belfort on regulatory compliance, he said, then didn't hear from Belfort again until Stratton Oakmont's dealings appeared in the news in the early 1990s.

"He is a very smart individual, a tremendous salesman, very bright," Sorkin said. "He was able to influence all the young, inexperienced people and promise them riches beyond their wildest belief."

See sidebar: Belfort Agrees to Boost Restitution Payments

Unlike traditional recruitment on Wall Street, where firms seek to hire people with an established client base, Belfort wanted young people so he could teach them his methods, said Gregory Coleman, a special agent with the Federal Bureau of Investigation who investigated the company.

The pump-and-dump scheme worked like this: the firm controlled the supply of shares by selling a stock offering to friends of the firm at, say, $4, then buying it back at $5. Brokers would then make their pitch to clients, creating demand and artificially driving prices higher. Finally, they would dump all the firm's shares, dragging prices back down and hurting stockholders.

"If you can control the supply, you can control the demand," Sorkin said. "And once they control the supply, they also control the price. They've created a market. That's where the fun starts."

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