Stratton Oakmont

Stratton Oakmont, Inc. was a Long Island, New York, over-the-counter brokerage house founded in 1989 by Jordan Belfort and Danny Porush. It defrauded many shareholders, leading to the arrest and incarceration of several executives and the closing of the firm in 1996.
Section 230 of the Communications Decency Act was created in response to Stratton Oakmont, Inc. v. Prodigy Services Co..
History
Jordan Belfort founded Stratton Oakmont in 1989 with Danny Porush and Brian Blake. Earlier, Belfort had opened a franchise of Stratton Securities, a minor league broker-dealer, and then bought out the entire firm. Stratton Oakmont became the largest over-the-counter firm in the United States during the late 1980s and 1990s, responsible for the initial public offering of 35 companies, including Steve Madden Ltd. The firm had no product control function to verify prices of its positions and monitor trading activity.
Stratton Oakmont participated in pump-and-dump schemes, a form of microcap stock fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements to sell the cheaply purchased stock at a higher price. Once the operators of the scheme "dump" their overvalued shares, the price falls and investors lose their money. Stratton Oakmont also tried to maintain stock prices by refusing to accept or process orders to sell stock. In 1995, the firm sued Prodigy Services Co. for libel in a New York court, in a case that had wide legal implications.
The firm was under near-constant scrutiny from the National Association of Securities Dealers (NASD) from 1989 onward. Finally, in April 1996, the New York District Business Conduct Committee barred Stratton Oakmont from conducting principal retail transactions for a year. Stratton Oakmont appealed to the NASD National Business Conduct Committee. In December, the NBCC expelled Stratton Oakmont from the NASD, putting the firm out of business. Officials called Stratton Oakmont "one of the worst actors" in the securities industry, with a history of "obvious disregard for all rules of fair practice".
In 1999, Belfort and Porush were indicted for securities fraud and money laundering. They pleaded guilty and admitted that for seven years they operated a scheme in which they manipulated the stock of at least 34 companies. As part of their plea deal, they received less prison time, and cooperated with prosecutors in their investigations of other brokerage houses.
In popular culture
The 2013 film The Wolf of Wall Street is a drama based on Belfort's memoirs, directed by Martin Scorsese. Leonardo DiCaprio stars as Belfort and Jonah Hill plays Donnie Azoff, a fictional character loosely based on Danny Porush.
The film presents Belfort's selection of "Stratton Oakmont" as the name for his company as a psychological trick: by using a seemingly respectable and supposedly historic name they could lure investors by appearing to be a professional, old brokerage firm. Earlier, Belfort worked for a boiler room firm known as "Investor's Center" which had traded in pink sheet stocks, before striking out on his own (a scene shown with Azoff and Belfort leasing an unused garage). An earlier scene had Belfort being questioned why he did not sell penny stocks to the rich; then formulating the name in order to use a bait & switch where an investor would first be pitched blue chip stocks, then pink sheet stocks would be sold after gaining the investor's trust. He pitches it as "A company that our clients can believe in, a company that our clients can trust. A company whose roots are so deeply embedded into Wall Street that our very founders sailed over on the Mayflower and chiseled the name 'Stratton Oakmont' right into Plymouth Rock." The opening scene of the film also plays on that deception, showing Edward Herrmann narrating a commercial where a CGI lion walks peacefully through an office of decent people working earnestly, a stark contrast to the actual lewdness and illicit behavior of what truly happened inside the firm.
See also
Microcap stock fraud
Stock manipulation
References
Companies based in New York (state)
Wall Street
Finance fraud
Brokerage firms
Pump and dump schemes
1989 establishments in New York (state)
1996 disestablishments in New York (state)