Commentary: How Real Is This "Boiler Room"?

For a long time I've been waiting for Hollywood to discover the underside of Wall Street. Such a movie, I felt, would have to be set in the mid-1990s, for that was the heyday of "chop houses"--the slimy brokerages that preyed on thousands of investors. And it would be, of course, a farce. While investors were ripped off for billions of dollars a year, the regulators were laughingly ineffective. All they ever did was file lawsuits that were the equivalent of flinging spit balls at an F-15. A good title for such a flick would be "Consent Decree"--after the pathetic legal weapon the regulators wielded in those days.

Well, a movie about chop houses has just been released, and a farce it is not. Boiler Room, which hits the multiplexes this weekend, is an intriguing potboiler that does a great job of evoking that era. I agree with Bradley Skolnik, the Indiana securities commissioner, who has praised Boiler Room as a cautionary tale that can educate investors. But the public may also come away from Boiler Room with the silly idea that if they do get ripped off, the wrongdoers will be swiftly detected and thrown in jail.

One reason for this is the formulaic plot, which is a very open homage to the 1987 movie Wall Street, with all that entails--including an omnipotent regulator emerging at the end like the cavalry to mete out justice and tie up loose ends. Instead of the flamboyant and magnetic Gordon Gekko, there is the flamboyant and magnetic Jim Young (Ben Affleck), chief recruiter at the fictional "J.T. Marlin." Instead of the naive newcomer Bud, there is the naive newcomer Seth, played by Giovanni Ribisi. Seth is a college dropout in Queens who runs--how's this for a metaphor?--a casino in his basement.

Ribisi, Affleck, and the other performers certainly have done a creditable job of researching their roles. Vin Diesel, convincing as a sympathetic but amoral senior broker, would be a valued addition to any of the surviving chop houses. Ditto for Nicky Katt, who plays Seth's cretinous supervisor and bears an uncanny resemblance to a well-known short-seller. The dialogue has a nice insidey feel, maybe too insidey for some people. For example, Seth is warned to not "pitch the bitch"--sell to women--because "they're a constant pain" in a certain part of the anatomy.

But Boiler Room starts to lose its credibility in the first five minutes, when the head of J.T. Marlin tells his brokers that "Bear Stearns can make all the calls they want" and it doesn't matter. Bear Stearns blowing the whistle on a chop house? In fact, the firm has been widely criticized for being far too cozy with numerous chop houses whose trades it executed. (Bear has vigorously defended its actions.) The film's writer-director, Ben Younger, says he mentioned Bear Stearns because it is a reputable house and he was not aware of the controversy.

Boiler Room drifts further from reality toward the end, when it dawns on Seth that it may not be totally kosher that he is getting a $3 commission, or "rip," for selling a $4 stock. How does that happen? No one will tell him. Then he finds out the reason--the companies don't exist. Then he finds prospectuses that show, lo and behold, that some people from Marlin were profiteering from the financing. He offers this "revelation" to the FBI, which apparently is not very good at reading prospectuses or finding out if companies exist.

TOO LATE. In fact, a brokerage dumb enough to sell stocks in totally bogus companies would have been swiftly padlocked, even in the mid-1990s. The scams were much more sophisticated than that, involving the illegal sale of cheap stock that stock promoters obtained for pennies from offshore accounts. The massive "rips" were widely known on the Street. The regulators' reaction: To do far too little, far too late.

It's a different picture today. Nowadays the National Association of Securities Dealers and the Securities & Exchange Commission are working closely with the FBI. They have been putting stock scamsters from the chop-house era behind bars. And that's great. But the sad fact is that regulators and law enforcement are making up for lost time--cleaning up today after the mess they caused years ago, when they failed to act swiftly and effectively against crooked brokers. For the thousands of people who got ripped off, that wasn't a farce or a potboiler. It was one hell of a tragedy.

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