Wall Street's Sleazy Reputation

A teacher recently told me that two of his old friends used to work at Stratton Oakmont, the penny-stock-promoting boiler room depicted in the movie The Wolf of Wall Street. Every day, they committed felonies and ruined investors’ lives. “Where are they now?” I asked. “Attica? Sing Sing?”

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“One went to Goldman Sachs. The other is at J.P. Morgan,” the teacher said. Figures.

I like my work as a hedge fund manager, but I hate the label that defines me. When I tell people what I do, I assume they imagine a scarlet J on my chest. The J is for jerk.

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Wall Street is filled with jerks—and worse. An often-toxic culture has a way of corrupting much of what the Street touches. One of the most stunning stories of 2013 was a Wall Street Journal piece headlined “Traders Pay for an Early Peek at Key Data.” Apparently, data providers Thomson Reuters and Deutsche Börse AG peddled legal “inside” information on consumer-sentiment data. In what alternate universe could this possibly be considered moral?

Recently, Wall Street corruption news hit closer to home. I learned that ConvergEx Group, my hedge fund’s broker, had fraudulently overcharged clients by millions of dollars. Two ConvergEx traders were headed to prison. I, apparently, was not one of those ripped off by my broker. That’s comforting.

A friend, now deceased, who worked on Wall Street told me he occasionally made trades on the basis of inside information. That shocked me because he was a great investor who didn’t have to break the law. So why cheat? “Everybody does it,” he said. “You’re a schmuck if you don’t.”

I believe a huge percentage of Wall Street traders and brokers are corrupt. Atop the corruption is a level of hypocrisy that is tough to stomach. Even as Goldman abuses its clients, as it did when it sold toxic “built to fail” mortgage securities to those it was claiming to serve, CEO Lloyd Blankfein says the firm is doing “God’s work.”

One way to tell you have stumbled upon a herd of Wall Street guys is that invariably they will denigrate women. Virulent sexism remains part of the Street’s code. I’ve seen instances of sexism dozens and dozens of times. Turney Duff’s entertaining memoir, The Buy Side: A Wall Street Trader’s Tale of Spectacular Excess, reinforces my perception of how Wall Street views women. Duff, who worked at three hedge funds, recounts that traders at those firms routinely paid inflated commissions in return for inside information, cocaine and escorts.

Sleazy stuff. Duff tells a great story that helps illustrate the amoral, dog-eat-dog Wall Street culture. Late one December, Duff called a trader at a small brokerage firm and placed huge orders designed to levitate the value of his fund’s holdings in the waning moments of the year. (This is illegal market manipulation, but hordes of people do it, and government regulators turn a blind eye.) Before the trades were placed, Duff noticed that the prices of all the stocks were rising. The other trader had clearly leaked his plans. That is called front-running, and it is also illegal.

Precisely a year later, the brokerage firm trader called Duff and wondered if he wanted to make similar trades. Duff told her he wanted to sell short a basket of stocks at 3:55 p.m.—that is, place a bet that their prices would fall. Sure enough, all of the stocks started dropping before Duff’s orders were placed. At 3:54 p.m., Duff called the trader to cancel his orders. He then bought enormous amounts of all the stocks through another broker. His fund made $10 million, and the trader’s clients got squashed. The trader made the mistake of trying to shaft the same guy twice.

What a world! Simply put, I would rather have my daughters marry plumbers than Goldman Sachs partners.

Columnist Andrew Feinberg manages a New York City–based hedge fund called CJA Partners.