Strip club takes off despite Wall St. crackdown

Discussion in 'Wall St. News' started by Optionpro007, May 22, 2006.

  1. First publicly-owned strip club woos investment bankers and analysts this week with free admission and reduced drinks at its second quarterly "Due Diligence Ball."
    May 19, 2006: 6:42 AM EDT

    NEW YORK (Reuters) - A Nasdaq-listed strip club chain is flaunting its assets to lure hard Wall Street dollars even as the financial community prepares to crack down on the after-hour entertainment expenses of its star deal makers.

    Rick's Cabaret International (Research), which in 1995 became the first "gentleman's club" to go public, on Monday wooed investment bankers and analysts with free admission and reduced drinks at its second quarterly "Due Diligence Ball."

    Inviting guests to check out the swanky Manhattan club, Rick's Chief Executive Eric Langan gushed about the delicacies offered, from live lobsters in the 80-seat restaurant to exotic pole dancers by the neon bar.

    Regulators "can tell analysts not to go to strip clubs, but they'll never tell them not to do due diligence," Langan told Reuters at the club's VIP lounge overlooking a stage, where dancer after dancer paraded her wares.

    Analysts inspecting the club's assets - even on their laps - declined to comment for this piece. The silence, of professionals known for their words, illustrates the fear pervading Wall Street since four Morgan Stanley (Research) analysts were reportedly fired after they accompanied at least one client to a Phoenix strip club in November.

    A Morgan Stanley spokesman said the investment bank does not comment on personnel matters, and noted its entertainment rules which prohibit "patronizing, in connection with work-related activities, adult entertainment establishments."

    Such rules are typical. But the New York Stock Exchange regulation unit and brokerage watchdog NASD filed proposed rule changes with the U.S. Securities and Exchange Commission that would force firms to adopt tougher standards.

    The NASD and NYSE declined to comment pending SEC approval.

    Without specifying dollar limits or what is appropriate, the proposals aim to curb potential conflicts of interest from lavish entertaining of clients, and could help protect against gender bias claims as well.

    Morgan Stanley and Dresdner Kleinwort Wasserstein, owned by German insurer Allianz AG Holding, have both been sued in the United States for sex bias in pay and promotions by female staffers who also alleged that male colleagues visited strip clubs and excluded them.

    Morgan Stanley agreed to pay $54 million to settle the case in 2004 and Dresdner, which said it vehemently disputes the claims, has asked the court to remove that and other salacious allegations from the complaint.

    "The rules are principles-based, not laundry lists" of acceptable behavior, said Travis Larson, spokesman for the Securities Industry Association, a trade group. He predicted that most Wall Street firms will be unaffected by the new rules since they are already compliant.

    Rick's, which runs 10 strip clubs in five states and has a market capitalization of about $30 million, posted sharply higher profit for the March quarter that prompted it to raise its full-year earnings outlook by 10 percent.

    The Houston-based company cited revenue from its 10,000-square-foot Manhattan club, which opened in September in the shadow of the Empire State Building.

    The club aims to blend exotic dancing with fine dining, offering $62 "Surf and Turf" dinners and $725 bottles of Hennessey VSOP cognac. Wireless Internet access and wide-screen TV sets showing business news are also incentives.

    "We haven't seen a huge change in customer spending or patterns," Langan said, noting that many customers are small-business owners rather than big shot bankers. But company-sanctioned visits, such as the once-weekly lunches of a Houston Chevrolet dealer Langan declined to name, are fading.

    "It's not as common nowadays, with everyone being conscious of the exclusion of women," Langan said. "But trust me -- those guys will still come. They'll just come in on their own."

    In fact, attendance is up from the generation that grew up with MTV and overt sexuality, Langan said.

    VCG Holding, another public strip club chain whose profit nearly tripled during the March quarter, did not return calls seeking comment.

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    "The perception is that people are becoming less inclined (to visit strip clubs)," said investment banker Ronald Russo, whose firm, US Euro Securities, does investment banking work for Rick's. "But that's only because of the expense (account) issue. Otherwise, it's becoming much more acceptable."

    To avoid expense report queries, Langan said businessmen often charge drinks and food to their companies and pay for lap-dances and private VIP rooms themselves.

    "Why would people stop doing what they enjoy?" Russo said. "If you told me Ruth's Chris Steak House was too expensive, I'd still go there ... you can just lay off somewhere else."