Investing in You: The hunter who trapped the 'Wolf'

Stock flippers and ratholes:

That was the dirty business of true-life

Wolf of Wall Street

Jordan Belfort, says Gregory Coleman, the FBI special agent who ensnared the notorious criminal.

The real story is even better than the movie. And, like every good story, it has lessons for us.

Coleman was invited to tell the tale at the recent Economic Crimes Conference at the Philadelphia FBI offices by Assistant Special Agent-in-Charge John Brosnan, formerly of Coleman's old New York squad.

Coleman (his character in the movie, Patrick Denham, is played by Kyle Chandler) and federal prosecutor Joel Cohen spent six years trailing, interrogating, and ultimately arresting Belfort (played by Leonardo DiCaprio) and his partner Danny Porush (played by Jonah Hill). Victims of Belfort's Long Island brokerage, Stratton Oakmont, lost $110 million.

The scam worked this way: Belfort and his army of young brokers would buy and manipulate small-cap stocks, making sure also to donate shares to friendly parties such as Steve Madden - yes, that Steve Madden, founder of the shoe company. Belfort's brokers would drive up the price of stock parked with Madden, known as a "rathole." Then Belfort, Madden, and the inner circle sold first, split the profits, and dumped the stock, sandbagging retail customers.

The red flags were not hard to spot, Coleman says.

In the early 1990s, other brokerage firms were barely profitable or losing money. Belfort earned 89 cents on every dollar, taking in $15.6 million in 1994. His performance was an outlier, especially while the stock market was on a losing streak.

Lesson One: Compare your investments to their peers. Are they doing so much better that it's almost too good to be true?

The Securities and Exchange Commission sued Belfort for fraud and barred him from the business for life - the worst thing that could have happened, Coleman believes. "At that point, he was no longer a regulated person" and was off the radar.

Lesson Two: Nonregulated persons or firms are a red flag. Arm yourself with information at Finra.org/brokercheck, where you can look up brokers' disciplinary history.

Despite the SEC ban, Belfort continued making millions, stuffing cash into safe-deposit boxes. Then he began laundering the money.

The couriers. Belfort opened foreign bank accounts under nominee, or a different name, in Geneva, Switzerland. He employed Todd Garrett, a drug dealer, whom Coleman says finked on his boss and "cried like a baby" upon arrest.

Garrett and his girlfriend acted as couriers for Belfort and even kept receipts. Coleman shows one bank deposit slip with Union Bancaire Price in Switzerland that reported a Belfort courier deposited $300,000 one day.

"Documents speak to us. How come this slip doesn't show a deposit in Swiss francs? Because Belfort's guy walked into the bank with a Louis Vuitton bag full of dollars."

Foreign nominee bank accounts were key to money-laundering charges against Belfort.

Accountants, take heed on behalf of your clients: If you're doing your due diligence, focus on bank accounts, not shell companies, and on to whom the money flows. "Follow the money. It's a cliche, but it's true," Coleman says.

"White-collar fraud is everywhere," he adds. Currently, he's investigating a $50 million-plus fraud against the U.S. government by bodega owners buying $10 food-assistance vouchers and paying customers $8 each, pocketing the difference.

Proceeds of fraud. A Coco Chanel-owned yacht that Belfort bought - then cut in half and had built even longer, to 175 feet - actually existed, just like the one in the movie. But in real life, Belfort's arrogance sank that yacht. He and 17 other people almost drowned because he insisted on sailing out into rough seas. The Coast Guard saved them, but the yacht went down in the Mediterranean.

Otherwise, the FBI would have auctioned it along with the diamond ring belonging to Belfort's wife, Nadine, and his houses in the Hamptons.

"These were all proceeds of fraud, and we sold them to pay back the victims," Coleman says.

Currently, Belfort is traveling on the "bad guy circuit," Coleman says, selling seminars on the techniques he used to defraud investors, making money again.

"He's got to pay it back. He has said he's going to. Will he?" Coleman asks. "He's capable of it - he's bright and charismatic, like a Southern preacher. The morality wires in his brain, though, were never spliced together."

Convicted of money-laundering and securities fraud in 2003, Belfort was sentenced to four years in prison (he served 22 months) and ordered to repay the $110.4 million to a victim-compensation fund.