Stephen Sinclair is a Canadian freelance writer who has been publishing professionally for several years.
Etymology of "Rathole" as It Relates to Finance Unclear
A search of the internet and Google Books appears to indicate that use of the word "rathole," as it relates to stock market fraud, begins with Jordan Belfort, who is infamous for bilking investors for about $200 million and serving jail time, as depicted in the movie The Wolf of Wall Street. He still owes investors $97.5 million of $110 million he was ordered to repay. One can only wonder whether Mr. Belfort coined the phrase himself, or whether he learned it from another swindler. If you're reading, Jordan, we would be pleased to learn where rathole came from.
One of Jordan Belfort's tactics was to use other people's names, with their permission, but illicitly, to buy and sell fraudulent stocks, where he was an insider, for a number of reasons. Having the ability to operate in the market of securities in which you have inside information with someone else's name is straight fraud, but that's what ratholes do. So is lying about a business' prospects. No different than cheating in poker. It's just common sense. Isn't it?
However, losing one's entire stake in poker is an outcome that most reasonable people would see as normal. Plus, cheating isn't allowed, one hopes, in legitimate poker games. Further, stocks are promoted to average citizens as reasonable vehicles in which to invest their future. The use of ratholes, and stock market fraud in general, really is an affront to democracy.
Noteable Rathole Brad, Played By Jon Bernthal, In "The Wolf of Wall Street"
Ratholes Facilitate Deception
It would seem that Jordan Belfort, any of his brokers, or his ratholes, would have no qualms whatsoever conducting other types of stock market scams. It would also seem that the internet has pared down the "50 percent" commissions referred to in The Wolf of Wall Street.
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Websites like Stockhouse.com would appear to facilitate deals between accredited retail investors and issuers of shares with dubious prospects, perhaps comparable to call options, which basically means, for some crazy reason, that investors can expect to lose all of their money a good portion of the time. Many of these stocks would seem to trade in a manner comparable to the stocks sold by Mr. Belfort.
In the current climate, the onus is on parties to private placements of seemingly fraudulent stock to create false demand, either to keep prices steady to liquidate, or to operate true pump and dump schemes in an attempt for gluttonous profits, true to Jordan Belfort's modus operandi. The first might earn an operator something like 50 to 100 percent, if given a deal on a block of shares. The second could earn them considerably more, conceivably quadruple-digit percentages, with larger amounts of money.
Ratholes Through The Years: Roger Barnes From "Wall Street"
A Stock Character In Long Cons
Brad, a notorious, and curiously popular swindler featured in The Wolf of Wall Street was happy to spend time in jail for his refusal to cooperate with authorities, confident that Jordan Belfort would compensate him when he eventually got out. That's one type of rathole.
Another well known, perhaps less enthusiastic rathole was fictional Roger Barnes, who was played by James Spader, in Wall Street. The moral of both Wolf and Wall Street seems to be one of, "Scammers will always get caught in the end." However, it is not clear whether this outlook jives with reality, given the preponderance of seemingly comparable activity on an apparent regular basis.
The internet and social media has presented the stock market scammer with a whole new way to reach potential victims. Another famous con artist, fictional James "Sawyer" Ford, from the television series Lost, as well as the 1973 film, The Sting, taught that the key to a successful con was to let the victim believe that losing their money was their own fault and that the endeavor was their idea to begin with. Social media is the perfect place to embed ideas like this and induce buyers to place orders on stock exchanges. Some claim that at least one CEO of a publicly-traded Canadian company does this regularly or that one of his ratholes does, using pseudonyms. Not enough to draw a big amount of attention. But enough.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
© 2018 Stephen Sinclair