The dying art of wining and dining on Wall Street
It’s Friday evening and one of the last great partiers on Wall Street has plans to stay in.
The 47-year-old sales trader sits on a black Fendi Casa sofa while playing Grand Theft Auto on his Xbox. He’s waiting for the Chinese food delivery guy in his 2,500-square-foot apartment he bought nearly a decade ago. After dinner, he plans to smoke weed, watch something on Netflix, and be in bed by midnight.
For Brad (not his real name), staying in on the weekends is part of his business strategy. He says it’s to recharge – to unwind, if you will.
During the week, he’s out on the town entertaining clients.
This week, he was out on four of five weeknights. He said that two of the nights were tame by Wall Street folklore standards – he was home by 1 a.m. They were the typical hug-and-tug business dinners followed by some minor-league gallivanting. By his estimation, each night resulted in 100,000 shares of business at $0.02 each – a $2,000 commission. Not bad for a night’s work.
The other two evenings he ended up “playing through”… which means he never went to sleep before going straight to work.
The first of the two nights, he ended up at a roving strip club with two hedge fund traders and a pocket full of blow. Brad had received a text message in advance with the address of the secret location of the club. They were set up with a table in the back and got dances from what he calls “civilians.” The establishment prides itself on not hiring professional strippers… It finds what they call “normal girls” – women with other professions who dance for extra cash. Brad’s night, fueled with vodka and cocaine, produced almost 300,000 shares of business the next trading day.
On the other night, “it got a little ugly,” as Brad says. He means it in the best way possible.
About once a month he attends an underground party in the basement of a steakhouse with 10-15 guys. It’s an ultra-exclusive invite. The evening’s festivities cost Brad $10,000 for him and a customer.
This kind of entertaining is reserved for only his best client… a client who accounts for 25% of his annual commission totals. They trade together almost every day and Brad brings home around $200,000 a year by keeping him happy.
Their night started off at the restaurant bar with the other regular Wall Street riffraff. They sipped scotch and waited. Then one by one, they were escorted to the basement. The business was taking precautions to not draw attention to a herd of guys going somewhere. Eventually everyone was seated at the table where they feasted on an epic steak dinner, a full bar, craps table, DJ, and an assortment of drugs.
The party had started.
Then the escorts walked in – two girls to every guy. The clothes came off immediately.
Cleaning Up Wall Street
There are many reasons why this party is so secret. The biggest is that for decades now, Wall Street has been trying to “clean up” the reputation of the industry.
Brad admits that the wining-and-dining business model is becoming harder and harder to sustain in today’s environment. The game has changed, he says – it’s not like it used to be.
Today, a large portion of the hedge funds on the Street can’t trade with Brad even if they wanted to. Many customers on the buy side have a commission formula already in place – who and how much gets paid are predetermined. So a night out on the town won’t move the needle for those customers.
The first five years of Brad’s career, he worked at a bulge bracket firm. He was armed with some of the best research, banking, and capital on the Street. He also had a generous corporate card that was rarely scrutinized. It was easy to do business.
Then in the late 90s, he traded all of that in to work at a direct payout shop… a brokerage firm that pays sales traders an exact percentage of their commissions. At the time, small sell-side shops would pay someone 40%-50% for every dollar they brought in.
Brad’s timing was sublime. It coincided with both the technology boom and the emergence of hedge funds. It was an era where hedge funds would quickly rise to a $2 trillion dollar plus industry, the remuneration for hedge fund managers soared into the billions, and sales traders saw their own wealth grow beyond imagination.
Personally, I was on the other side of some of Brad’s early trades. I had millions and millions of unsupervised commission dollars to hand out. I flew over traffic jams in private helicopters to the Hamptons and Atlantic City. I sat in 50-yard-line seats at the Super Bowl and right behind the dugout at Yankee playoff games. A broker and I once went to a World Series game with eight tickets in our pockets. We used the six extra ones to go outside to smoke because of the stadium’s “no reentry” policy. Each cigarette cost us $2,000.
The nights were filled with secretive, Gatsby-like characters, unprecedented greed, and an attitude of impunity. Big commission dollars brought big expense accounts and there was no limit to the way brokers treated hedge fund traders. The entertainment was only limited to the imagination. And it was all paid for by commission dollars. With $50 million in commissions to give out over the year, I was very popular. And I had plenty of new best friends.
That is, that’s how it used to be.
From Blow to Bagels
In hindsight, one seminal event shifted the landscape of wining and dining forever…
It was a 2003 outsized bachelor party that owns a permanent place in Wall Street lore. It was rumored to have dwarf tossing and cost $160,000, which was allegedly paid for by sell-side firms courting a Fidelity trader. And it was partly the reason Fidelity was fined $8 million dollars by the U.S. Securities and Exchange Commission.
And although the change wasn’t instantaneous, the bad press marked the transformation of gift-giving rules on Wall Street. From that moment forward larger and more conservative institutions started putting rules and limits in place on how a client could be entertained.
Before the bachelor party, many sell-side managers were fully complicit. And in some cases, sales traders were incentivized or even required to do as much entertaining as they could. But after the bachelor party, the corporate card-carrying game took a left turn. And a lot of the hardcore entertainment practices had to be taken off the books.
From 2004 to 2008, the number of guys who could extravagantly entertain clients nearly shrunk in half. The sales traders at bigger banks were on a much shorter leash, but men and woman at lower-tier firms and direct payout shops like Brad still had carte blanche. And there were plenty of buy-side traders willing to partake in some of the good old-fashioned wining and dining.
It wasn’t until the financial collapse in 2008 that most hedge funds and mutual funds started to catch up to and monitor this type of activity. The buy side moved their compliance officers from a desk right next to the back office all the way to a corner office next to the founding partner. Who and how much brokers got paid became a major focus.
I recently spoke with the head of a trading desk for a multibillion-dollar asset management firm that’s highly respected on the Street. And he too reiterated the same changes in the wining and dining of today. He said he pays for himself every time he goes out with a broker.
I tried to give him a metaphorical nudge to the gut suggesting – come on, you can get away with some things… But he responded: Not worth it. Today someone on the buy side who partakes in excessive entertainment could be risking their job.
In 2017, a lot of the face-to-face meetings between brokers and clients are on a much different level. It’s considered to be somewhat of a plum to be offered a couple of bikes at SoulCycle or a spot in a CrossFit workout class. And even more common is a breakfast meeting in the office. I guess you have to bond over bagels these days. It’s a tougher gig.
I followed up with Brad a few days later. He told me he ended up watching a few episodes of Stranger Things on Friday night. The rest of his week looked more interesting… plans to wine and dine at Japanese hot spot Zuma on Tuesday… Drinks at the luxury Mark Hotel on Wednesday… And Thursday, he’ll swing by Beauty and Essex – a speakeasy style lounge hidden behind a pawn shop.
Brad says he knows he’s on the endangered species list. But he doesn’t care: “I don’t have any other skill. I’ll just keep entertaining clients until I can’t do it anymore.”
Turney Duff is a former trader at one of the biggest hedge funds in the world, the Galleon Group, where their founder and several Galleon employees were found guilty of insider trading. Turney rose through the ranks and then fell prey to the trappings of Wall Street: money, sex, drugs, alcohol, and power. Turney chronicles his spectacular rise and fall in his bestselling book, The Buy Side; A Wall Street Trader’s Tale of Spectacular Excess.