Strip club with invites to “Due Diligence Ball.”

NEW YORK, May 18 (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 Inc. (RICK.O: Quote, Profile, Research), whichin 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
(MS.N: Quote, Profile, 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

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 (ALVG.DE: Quote, Profile, Research), 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

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

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

“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 Corp. (PTT.A: Quote, Profile, Research), another public strip
club chain whose profit nearly tripled during the March quarter, did not
return calls seeking comment.


“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

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 (RUTH.O: Quote, Profile, Research) was too
expensive, I’d still go there … you can just lay off somewhere else.”

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