The Stock Market: An Ethical Dilemma
“Sell me this pen,” said Jordan Belfort— the extremely witty, supercilious sales extraordinaire who tactfully manipulated thousands of people into buying “hidden-gem” penny stocks and gave them the illusion that those stocks would see monumental gains in a matter of time. Jordan, son of an accountant raised in Queens, New York, quickly demonstrated that he had a knack for sales. This was realized when he and his friend managed to earn $20,000, which is equivalent to $67,000 when adjusted for inflation, selling Italian ice cream to people on a local beach between completing high school and college.
If I told you that Belfort attended college, you would probably nod and say, well, okay. If I asked you what his field of study was, I’d bet my rent that 90% of you would say finance or business. No, seriously? Out of all the degrees you may have thought Jordan pursued, I bet biology isn’t what you had in mind. For years, Belfort had intentions of pursuing medical school when he decided to enroll at the University of Maryland School of Dentistry. Yeah, you heard me correctly, dentistry. Fortunately for Belfort, the Gods of medicine had other plans for him when the dean of the university announced, on the first day of school, “the golden age of dentistry is over. If you’re here just because you want to earn a lot of money, you’re in the wrong place”.
Words and phrases “Not a lot” and “money” didn’t sit well with Jordan, so he said the hell with this and followed suit of the money. How? By opening up an investment operation, Stratton Oakmont with a couple of trusted acquaintances and friends. Established in Long Island, New York, Belfort ran the “over-the-counter” brokerage house throughout the 1980s and 1990s where he and his co-founders built up the operation to become the largest OTC firm in the United States. It was responsible for the initial public offering of 35 companies, including Steve Madden. However, the firm did not have a product control function to verify the prices of its positions and monitor trading activity. With this in mind, let me tell you about the events that transpired within a few short months of the 2020-2021 fiscal year.
Last year, untested traders, including myself, participated in and witnessed one of the biggest stock manipulation efforts of recent memory. A group of Reddit users pumped up a collection of stocks such as GME, AMC, Blackberry, BlockBuster, and Nokia to name a few. The internet has given people across the world the ability to unite, network, and scheme online while miles apart. This has led to what I believe is one of the most intriguing events I have ever witnessed in my short 24-year lifespan.
This strategy of banning together online through social media platforms — mainly Reddit — was clever, uncanny, and bold. Melvin Capital, the investment firm that predicted the housing market crash in 08' attempted to short the company, GameStop’s stock, GME when they saw evidence of decline. GME was in line with a similar storyline that of Blockbuster, which saw its demise when emerging video and movie services began to leverage the intranet as a means to host and sell content. Unlike Blockbuster, GME is a video game consumer electronics retailer. Like the gods of medicine carved out a new path for Jordan Belfort, the video game gods sent a band of unlikely keyboard warriors to resurrect GME out of its grave and Melvin Capital running for the red hills of Tamil, Nadu.
If you aren’t familiar with WallStreetBets, you’ve missed out on some much-needed tea and drama from your life. In short, WallStreetBets is a Reddit forum, amassing 6 million followers that entered the mainstream during the beginning of 2021 of the global pandemic when they, in their own way, demonstrated the modern-day stock market battle of David versus Goliath with the whole world watching.
What started as a haven for retail bros where amateur traders like myself attempted to strike it big by making short-term options bets on the stock market eventually grew into a legitimate financial force, that gained the power to manipulate markets and topple institutions investment operations. Their reign of terror exploded during the pandemic when thousands of people had no choice but to stay in their homes and day-trade stocks. In the span of a few months, GameStop soared to over 70$ a share in the span of a weekend, while Melvin Capital found itself in utter disbelief. In what seemed like a flash, GameStop stock catapulted to $330/share at the peak of its height before subsiding to the one-hundred-dollar threshold.
WallStreetBets outwitted big investment firms like Melvin Captial by banding with a community of like-minded individuals who put call options on GME. A call option is a contract that gives the owner the right, but not the obligation, to buy a stock at a future date, at a predetermined price. Options are popular because you’re not left holding the bag if the market goes against you. On the other hand, Melvin put $55 million worth of put options on GameStop — essentially opposite of calls — and that backfired horrendously. You could say Melvin was down tremendously. By shorting the stock, Melvin, in turn, was borrowing shares of GameStop, selling them as proceeds, and using them for other investments. So now, that the turntables have turned so catastrophically, Melvin had to buy GameStop at their new inflated price and give them back to the original owner — DeepFuckingValue. If there’s a name that lived up to the hype. that’s it.
On its face, the GameStop surge appeared to be a classic pump-and-dump scheme, in which a group of people colluded to hype up a stock, artificially increase its share price and then sell at a profit. However, this was more than that. It was calculated, mapped out, methodical, and put the meaning of democracy on full display.
Okay, let’s take a step back. You might be asking yourself, perplexed and all, what do Jordan Bellfort and WallSreetBets have to do with ethics? Let me explain. On one side, you have Jordan Bellfort, the salesman who used means of effective communication, trained “professionals”, and a bullet-proof selling approach that successfully pushed products (penny stocks) to thousands of gullible clients and led to millions of dollars. While on the other hand, you have the Reddit community, WallStreetBets, who through an online public forum run by inexperienced nobodies, managed to collude against Melvin Capital and rid it of its riches.
In retrospect, both Bellfort and WSB gained the respect of emerging traders worldwide. Jordan for his selling and WSB for their “strength in numbers” approach. Jordan stole from millions of “little guys” while WSB stole from Melvin Capital, the giant that sought out instabilities in the economy. An ethical dilemma is defined “as situations in which every available choice is wrong.” If we know that the “world isn’t fair”, why should ethics in the stock market matter? What is the point of regulation in a market considered a “free-market”? The point of the stock market is to make money by any means necessary, right? With these questions in mind, who is in the wrong — Bellfort or WSB? Both or none?
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