'The Wolf of Wall Street' Prototype: 'Bitcoins' are worse than anything I've ever done

[Observer.com Comprehensive Report] According to the Financial Times on October 23, in response to the recent popularity and soaring prices of Bitcoin, Jordan Belfort, the prototype of the protagonist of the movie "Wolf of Wall Street" and a former "penny stock" broker, denounced the initial coin offering (ICO) craze as "the biggest scam in history" and it will "get out of control in front of everyone." Interestingly, he also said that the initial coin offering is "much worse than anything I have ever done."

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Token issuance financing refers to the financing subject raising so-called "virtual currencies" such as Bitcoin and Ethereum from investors through illegal issuance and circulation of tokens. It is currently being sought after around the world.

According to Coinschedule.com, 202 ICOs have raised just over $3 billion so far this year, with most issuers promising to improve the experience of trading and investing in digital currencies.

However, regulators are concerned that small investors will be swindled by promises of outsized returns. Last month, China’s central bank banned ICOs, saying they “seriously disrupt economic and financial order.” British regulators said investors should be prepared for the value of tokens to drop to zero.

Belfort, who served 22 months in prison for securities fraud and money laundering, likens the current ICO craze to the “blind pools” that were all the rage in the 1970s and 1980s, when companies raised money from investors without saying what they were going to do with the proceeds. Many blind pools were liquidated without ever making an investment, but brokers had already collected large commissions. “The creators of ICOs are continuing one of the worst large-scale scams on people,” he said. “Maybe 85% of them don’t have bad intentions, but the problem is if 5% or 10% want to scam you, that’s a disaster.”

Stills from The Wolf of Wall Street, courtesy of Visual China

Still, some start-up executives see ICOs as a legitimate way to raise money, part of a grassroots movement that is upending big banks and venture capital funds. Token buyers generally have a right to future services or profits.

But in Belfort's view, the techniques used by ICO salespeople seem similar to those used to pump and sell at high prices: they hype up the company, claim to have inside information, and trick customers into buying stocks in large quantities, thereby driving up the stock price. Then they sell all their shares before the price collapses.

"This is the biggest fraud in history, a fraud of this magnitude that is going to get blown up in front of everyone's eyes. It's far worse than anything I've ever done," Belfort said.