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'Boiler Room' Blows the Lid Off the Wrong Thing

The new film nails chop shops, but it has the whiff of the mid-'90s.

Boiler Room

, the new Wall Street picture from New Line Cinema, might bring off-off-Wall Street to its knees. The movie exposes shady brokerages and their money-hungry employees as the slippery creatures they are. Unfortunately, the story is more of a blast from the recent past and the shocking truth is a little anticlimactic.

The movie, which played at the

Sundance Film Festival

last week and hits theaters nationwide Feb. 18, is no

Wall Street

. While Hollywood's portrayal of takeover lizards and

Gordon Gekko's

"Greed is good" mantra tapped into the culture of the time, this story is a beat behind.

Boiler rooms (or bucket shops or chop shops) are not-very-reputable trading firms that push the stocks of companies with a less than $300 million market cap, or micro-caps. For anyone who cares about what makes the stock market tick (most of us) or who has ever worked in a sleazy cold-calling operation (not many of us, we hope), the movie has appeal. Forget about the sappy personal stuff the film crudely slops in (romance, father-son relations). When it comes to the underbelly of the stock market, however, first-time director Ben Younger nails it.

Giovanni Ribisi


Saving Private Ryan


The Mod Squad

) plays Seth Davis, a strangely wrinkled 19-year-old college dropout who signs on with a small Long Island, N.Y.-based brokerage, J.T. Marlin, because one of his friends works there. Like many brokers, he starts out making cold calls to unwitting investors. At the urging of the other brokers, and in hopes of making some sweet bucks, Davis lies about penny stock returns. He sells stock without a license, he sells stock in companies that don't exist, he manipulates stock prices in the aftermarket and so on. Eventually, like everyone in the movies, he pays the consequences.

Here's what he's really selling: J.T. Marlin has shell companies, generally pharmaceutical or biotech companies, that don't have any serious shareholders. The brokerage sells shares in these worthless companies -- with which it has some obscure financial ties -- to its customers at a set price. As long as no shareholders sell, the stock goes up every time someone buys. As soon as someone starts to bail out, the stock collapses. A $5 stock can be worth pennies in minutes.

For most of the movie, the other brokers care more about making the next payment on their tasty cars than fussing over the ethics of their actions.

Ben Affleck

has a small role as a hard-nosed recruiter whose job is to make sure that the newest group of brokers, including Seth, doesn't care about ethics either.

In fact, it isn't until Davis ruins the life of some Middle American manager that he starts to doubt himself and take note of some seemingly sinister clues -- the compliance officer shredding documents, the same prospectus for five different companies and an empty ready-to-go trading office in the building next door in case of trouble.

Part of the movie's appeal is Davis' morals -- which stretch like taffy. For most of the flick, he runs an illegal casino out of his house in Queens. In a final desperate attempt to fix his mistakes, he tries to pull his father -- a judge -- into a confusing and factually obscure plan to pull off a scam around an initial public offering.

But the thing is, boiler rooms are hardly the hottest topic on the Street or with regulators right now. Micro-cap fraud, the kind portrayed in

Boiler Room

, really took off during the bull market of the 1980s, continuing with the bull market of the 1990s. In 1995 and 1997, the


and the

Justice Department

together took down fraudulent brokers. And in a particularly infamous case, they brought action against

A.R. Baron

in 1996, accusing its principals of fraudulent sales practices and unauthorized trading in customer accounts. Customers lost nearly $7 million. (A.R. Baron was back in the news recently because of the part

Bear Stearns

, the brokerage's clearing house, had in the case.)

But these days Internet scamsters who tout stocks on Web sites, message boards and chat rooms are the news.

Tokyo Joe would make a much better subject.

If you know trading well,

Boiler Room

is simplistic. The gulf between J.T. Marlin and the big-name firms on Wall Street is much too wide. After all, brokers at well-known, respectable firms are sanctioned every month for some of the same infractions these guys make.

But for individuals who have started investing for themselves,

Boiler Room

can impart a sense of satisfaction with their self-sufficiency. And the movie gives an accurate look at this tiny segment of stock trading. Although it's slightly outdated,

New Line Cinema

does reveal -- warts and all -- an unfortunately timeless Wall Street story: scams.