From Lily Bart to the Boom Boom Room: How Wall Street’s Social and Cultural Response to Women Has Shaped Securities Regulation

In Edith Wharton's 1905 novel House of Mirth, Lily Bart learns in one brutal moment what happens to women who get tangled up with the stock market. Though she is beautiful and well-born, Lily is vulnerable when she seeks salvation in the stock market - she has no family to support her, no fortune of her own, no training in business matters, and no socially acceptable means of acquiring money, save marriage. When the husband of a friend (Gus Treanor) offers to help Lily by speculating in the stock market, Lily agrees. And when Treanor begins presenting Lily with money, she gladly accepts what she assumes are trading profits. One night, however, after luring Lily to his house under false pretenses, Treanor makes his true intentions known. After accusing Lily of leading him on, Treanor demands sexual favors, telling Lily that she must "pay up". Even though Lily manages to extricate herself from the house without submitting to Treanor’s demands, she is ruined by this encounter. Cast off by her social circle, Lily eventually leaves her last pennies to Treanor, takes an overdose of sleeping medication and dies alone in a boarding house room. One hundred years later, when senior Morgan Stanley executive Zoe Cruz sought her fortune in the stock market, she appeared to have none of Lily Bart's limitations. Ms. Cruz was a long-time Wall Street warrior. She began working on Wall Street in 1982 after graduating from Harvard College and Harvard Business School. After proving herself on the trading desk, she spent more than twenty years working her way up through management, eventually earning millions of dollars per year in compensation, and billions in profits for her employer. By 2007, she was the heir apparent for the CEO job. Just months after praising Ms. Cruz's market insights and her contributions to the Morgan Stanley’s bottom line, however, Ms. Cruz's boss called her to his office. With the subprime mortgage crisis unfolding, losses mounting and his own job under pressure, Ms. Cruz's boss said that he had "lost confidence" in her and asked her to resign. After a ten minute meeting, Ms. Cruz left the building and never went back. In the wake of termination, some former colleagues questioned whether the woman they had nicknamed "the Cruz Missile" had ever understood the markets, trading or how to manage financial risk. In this article, I argue that even though Lily Bart's fictional ruin and Ms. Cruz's rise and fall are separated by more one hundred years, "stories" like theirs are typical, and reflect Wall Street’s fixed and surprisingly narrow social and cultural response to women who wish to trade securities or work in the financial industry. In Wall Street lore, the "masters of the universe" are almost invariably men - they are the high-flying traders, the crusading regulators and even the notorious scoundrels though to have shaped the markets and our system of securities regulation. Women, by contrast, are portrayed as social and cultural outsiders to the Wall Street world. Drawing upon industry narratives, articles from the popular press and selected academic commentary from the past one hundred years, I show how women are either omitted from Wall Street narratives entirely, as if they are (and should remain) absent from securities markets, or relegated to the status of hapless victims or allegedly incompetent shrews. In either case, Wall Street's prevailing narrative assumes that women lack the skills and characteristics necessary to navigate on Wall Street, and risk financial and reputational ruin if foolish enough to venture into the markets alone. I further argue that Wall Street's social and cultural response to women has become embedded in our system of securities regulation. Drawing upon selected case law, legislative history and administrative agency reports from the 1920s to the present, I show how reform-minded legislators, courts and regulators have used stories of vulnerable female victims of investment abuse - particularly "poor widows" - when seeking to curb abusive sales practices on Wall Street. Drawing upon employment discrimination cases, I show how Wall Street firms have used the same stereotypes about women to justify excluding women from employment on Wall Street and to rebut discrimination, harassment and retaliation claims. Finally, having exposed links between Wall Street's social and cultural response to women and our regime of securities regulation, I argue that Wall Street’s singular narrative for women has come at a cost, and one that we have yet fully to explore. Securities regulation purports to be a gender-neutral exercise. It uses supposedly gender-neutral standards like "reasonable", "sophisticated" and "unsophisticated", and it assigns rights and obligations based on purportedly gender-neutral roles like "trader" "broker" and "customer". In reality, however, relevant standards and systems reflect unstated gender norms about who is sophisticated and skilled when it comes to the markets, and who is not. And because the law, with its tendency to use labels and stereotypes, has seized upon Wall Street’s image of women as incompetent outsiders, it has reinforced and in some cases legitimized Wall Street’s gender norms. As a result, instead of examining the skills and characteristics of individual market participants, we assume that some people are competent merely because they "look the part" (say, Bernard Madoff) and we are skeptical of those who do not. We presume that some people are vulnerable and in need of protection (poor widows), but we are skeptical when people who do not fit this stereotype allege investment abuse. And, we assume that norms and systems impact all system participants equally, when in reality, they may reflect the experiences and perspectives of one or more dominant groups. This paper examines links between Wall Street's prevailing image of women and case law, legislative and regulatory activity as a first step in understanding how Wall Street's gender norms have affected securities regulation. Going forward, this paper urges scholars to ask hard questions about the unexamined underpinnings of our system of securities regulation (including but not limited to unexamined gender stereotypes), so that our regulatory regime might be as effective and efficient as our times demand.