Does Wall Street Have Better Ethics Than the Supreme Court?
The Court’s right-wing judges are so unethical they’re starting to make investment banks look respectable
By now, you’ve heard about the ethical shitshow inside the U.S. Supreme Court. We’ve repeatedly seen evidence that the highest billionaire bidder can buy off the Court’s justices. To be clear, only the Court’s conservative judges are on the take; if Kagan, KBJ, or Sotomayor were in on the gravy train, we’d know it by now.
Almost as bad as their repeated breaches of the public trust is the justification for their malfeasance. We’re supposed to believe they’re intelligent enough to interpret the Constitution on our behalf but not savvy enough to understand that something is expected in return when billionaires pay for their vacations.
Indeed, some accounts of the Court’s ethics-be-damned hijinks are so ridiculous they almost read like the plot of a television comedy. Admit it, wouldn’t you watch a show about a Supreme Court Justice’s mom living for free in a house paid off by a billionaire donor? How is that not hilarious? How about a series featuring a Chief Justice’s wife who pivots to a new career to cash in on her husband’s job?
Two years after John Roberts' confirmation as the Supreme Court's chief justice in 2005, his wife, Jane Sullivan Roberts, made a pivot. After a long and distinguished career as a lawyer, she refashioned herself as a legal recruiter, a matchmaker who pairs job-hunting lawyers up with corporations and firms…
…And life was indeed good for the Robertses, at least for the years 2007 to 2014. During that eight-year stretch, according to internal records from her employer, Jane Roberts generated a whopping $10.3 million in commissions, paid out by corporations and law firms for placing high-dollar lawyers with them.
That eye-popping figure comes from records in a whistleblower complaint filed by a disgruntled former colleague of Roberts, who says that as the spouse of the most powerful judge in the United States, the income she earns from law firms who practice before the Court should be subject to public scrutiny.
The SCOTUS mess got me thinking about my former profession's ethics and disclosure rules.
Believe it or not, the financial services industry actually has rules governing things like conflicts of interest, unlike the Supreme Court. Big investment companies like JP Morgan even have their own code of conduct.
Like the Court, investment banks also have disclosure rules. During my thirty-plus years in the business, I rarely had anything to disclose. Given my position, however, I saw the disclosure records of everyone I hired. Some of my former colleagues had plenty to disclose.
Most disclosures were what you’d expect: sketchy financial dealings and the like. Others were more serious, like getting arrested with a drug-caked triple-beam scale in your trunk (this really happened). No matter how ugly the disclosures, potential clients have a right to know about them.
That said, like any set of rules, there are always loopholes.
T&E: Wall Street’s secret weapon
Although I couldn’t give my clients free vacations or pay their kids’ college tuition when I worked on Wall Street, I had one massive asset for winning business—my travel and entertainment budget.
As the head of a trading operation, a big part of my job was traveling around the country to see clients. When I wasn’t traveling, I was expected to entertain clients several times a week. That’s where the expense account kicked in.
Even though my company was small, I still spent thousands every month wining and dining clients. I took clients to sporting events, treated them to lavish dinners at Manhattan’s five-star restaurants, and, if necessary, even footed the bill at high-end gentleman’s clubs. A drunk client in need of a limo ride home? Not a problem. A round of golf on a PGA course? I was your man. Want a weekend in the Hamptons? Just say the word.
My expense account worked its magic on almost every type of investor, from traders at hedge funds to billion-dollar money managers. The one exception to the temptation of free entertainment was clients who worked for governmental entities.
Soon after I left Arkansas for a trading job in Manhattan, my new boss approached me one morning. “Marlon, call your guy at ______ pension fund. I’ve got court-side seats to the next Sacramento Kings home game,” he said. “Fly out to California and take your guy to the game.”
Unlike other federal judiciary members, the Supreme Court’s nine life-tenured justices have no binding ethics code of conduct. As many high-level federal officials are, they are subject to disclosure laws requiring them to report outside income and certain gifts. However, food and other “personal hospitality” such as lodging at an individual’s residence is generally exempted. Justices also decide whether to step aside from cases involving a possible conflict of interest. -Reuters
“My guy” was the head trader at a multibillion-dollar pension fund in California. Aside from being one of my best clients, he was also a huge sports fan. At the time, the Sacramento Kings were among the hottest teams in the NBA. Their roster was stacked with big-time talent: Vlade Divac, Chris Webber, and Peja Stojaković were rising stars. I couldn’t make the phone call fast enough.
But instead of taking me up on my offer, my client said, “I appreciate it, Marlon, but I’m going to have to pass. I don’t want to be on the front page of the Sacramento Bee.”
He explained that, as a State of California employee, accepting expensive freebees violated state ethics rules regarding gifts. Dinner and drinks were okay, but NBA tickets? That was a no-no.
The pension fund my client worked for was so concerned about even the appearance of impropriety they sent me a form to fill out each year. To keep doing business with them, I had to report how much I spent taking their traders to lunch or dinner. Even Christmas gifts went on the report.
I was disappointed about missing the game, but I knew his refusal made sense. I knew the motivation behind our ticket offer was hardly altruistic. Those basketball tickets came with strings attached. Had my client accepted, my boss (and I) would expect immediate trading business. That’s the way the game works.
Even Wall Street draws the line somewhere
I once was in business with a guy in New York, who, in addition to owning an investment firm, also owned a five-story building in downtown Manhattan. Of all the folks I encountered while working there, this guy was one of the smartest.
What this dude did with his building was a stroke of marketing genius. He hired Sotheby’s apartment real estate people to lease all the floors except the penthouse and the basement.
He was into extreme sports and would travel all over the world just to participate in really crazy events. So he turned the basement floor of his empty building into a boot camp-style workout facility. Then he invited the firm's trading clients to come work out with him before going to work.
The finance bros loved it.
At the crack of dawn, a dozen or so fleece vest-wearing dudes would show up at his building just to let this dude work them the bone. During the summer, he staged a weekly Texas Hold ’em poker tournament. He turned the penthouse of his building into a pop-up casino.
Like those charity casino events, no real money was involved, but the whole setup was so authentic, you’d never know it. He rented poker tables and hired buxom women to serve free drinks. He even bought in a gourmet chef who made tortellini and little pizzas while everybody played cards.
Dozens of buy-side traders from all the big hedge funds and banks came out to play in his tournament. Players got $10,000 worth of chips to gamble away when they stepped off the penthouse elevator. Everyone played until there was one person left standing. Once you lost all your chips, you could hang out with a drink on the building’s rooftop.
The weekly winner won a free helicopter ride to Atlantic City for a night of gambling. At summer’s end, there was a championship poker event. The winners from each week played each other for the grand prize: a week with a guest in a San Tropez villa. When the market opened the next day, trade tickets poured in faster than the traders could write them.
Why? Because our clients knew the not-so-unspoken rule of our business. Sending trades—lots of trades—kept the fire hose of free stuff going. From a regulatory perspective, all of this was on the up and up—the poker, the helicopter rides, the villa—all of it. The firm could pay for just about anything.
Well, anything except the client’s airfare to San Tropez.
Loose as they were, regulatory restrictions don’t allow investment firms to pay for a client’s travel that way. A firm could lease a house in the Hamptons and throw a party fit for a music video, but they couldn’t pay a client’s travel expenses. That would be unethical.
One evening, I shared a taxi with a client from one of New York’s public pension funds. When we reached our destination, I attempted to pay for our trip. But because of their fund’s ethics policy, he insisted we split the $15 cab fare. My client knew what it meant to accept free dinners and exotic trips, even a cheap taxi ride. There is always something expected in return.
He knew what every Supreme Court Justice should know, stuff like that is never really free.
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