Belfort originally founded Stratton Oakmont as a franchise of Stratton Securities, then later bought out the original founder.[19] Stratton Oakmont functioned as a boiler room that marketed penny stocks and defrauded investors with the "pump and dump" type of stock sales.[21] During his years at Stratton, Belfort developed a lifestyle that consisted of lavish parties and intensive recreational use of drugs, especially methaqualone—sold to him under the brand name "Quaalude"—that resulted in an addiction.[1][22] Stratton Oakmont at one point employed over 1,000 stock brokers and was involved in stock issues totaling more than US$1 billion, including being behind the initial public offering for footwear company Steve Madden Ltd. The firm was targeted by law enforcement officials through virtually its entire history, and its notoriety inspired the film Boiler Room (2000),[23] as well as the 2013 biopic The Wolf of Wall Street.
The National Association of Securities Dealers (now the Financial Industry Regulatory Authority) began pursuing disciplinary actions against Stratton Oakmont in 1989, culminating in its permanent shutdown in 1995.[24] Belfort was then indicted for securities fraud and money laundering.[25][26]
Belfort served 22 months of a four-year sentence at the Taft Correctional Center in Taft, California in exchange for a plea deal with the Federal Bureau of Investigation for the pump-and-dump scams which he ran that led to investor losses of approximately US$200 million.[1][27] Belfort was ordered to pay back $110.4 million that he swindled from stock buyers.[28] Belfort shared a cell with Tommy Chong while serving his sentence, and Chong encouraged him to write about his experiences as a stockbroker.[29] The pair remained friends after their release from prison,[29] with Belfort crediting Chong for his new career direction as a motivational speaker and writer.[30] At a motivational talk that he delivered in Dubai, United Arab Emirates (UAE) on May 19, 2014, Belfort stated to the audience:
I got greedy.... Greed is not good. Ambition is good, passion is good. Passion prospers. My goal is to give more than I get, that’s a sustainable form of success.... Ninety-five percent of the business was legitimate.... It was all brokerage firm issues. It was all legitimate, nothing to do with liquidating stocks.[26]
Federal prosecutors and SEC officials involved in the case, however, have said, "Stratton Oakmont was not a real Wall Street firm, either literally or figuratively."[31][32]