Wall Street’s secret society is more secretive than ever

January 17, 2014, 10:22 PM UTC
Members of Kappa Beta Phi include, from left: AIG CEO Robert Benmosche, muni bond queen Alexandra Lebenthal, and Mike Bloomberg.

FORTUNE — On Thursday night, Kappa Beta Phi, a secret society of Wall Street bigwigs, held its 82nd annual gala at the St. Regis Hotel in Manhattan. At these black-tie dinners, around 200 of the biggest names in finance carry on like fraternity kids, hurling insults and dinner rolls at new recruits who prance through intentionally embarrassing skits dressed in drag. For one night, the incredibly rich, frequently self-important titans of finance mock each other over their staggering pay, their lousy deals, their scandals, and their pompous pronouncements to the press. “It’s intended to be an evening where competitors actually put down arms and get out of the Wall Street pattern, into an entirely different mode,” says one member.

Kappa Beta Phi’s illustrious rolls include former New York City mayor Mike Bloomberg, AIG (AIG) Chairman Robert Benmosche, venture capitalists Wilbur Ross and Ken Langone, and legendary dealmakers such as Joe Perella of Perella Weinberg Partners and Jimmy Lee of JP Morgan Chase (JPM). There’s also a VIP roster of powerful women, among them muni bond queen Alexandra Lebenthal and famed analyst Meredith Whitney.

It’s hardly surprising that a secret society wants to keep its rituals secret. But this year Kappa Beta Phi’s famous members are apparently far more scared — borderline paranoid, in fact — than ever before that the details of their annual bacchanal will leak out. On the one hand, they want to keep their madcap night as wacky as ever. On the other, they fear that tales of their intentionally undignified behavior will prove harmful even as populist anger over the bailouts subsides, memories of Occupy Wall Street fade, and profits rebound.

The organization ordered an unprecedented lockdown on all comment. When calling sources to request a report on the gala, this reporter got used to such responses as, “The organization has been sending e-mails all over, warning us to say nothing!” In the ultimate illustration of secrecy as obsession, one person close to the group warned, “Jobs are at stake!” The folks trying to portray themselves as unpretentious and fun appear to have lost all sense of humor when it comes to word leaking out about their antics.

MORE: Yes, Goldman Sachs really is a great place to work

Kappa Beta Phi was founded in March of 1929, just months before the October crash. The name is a play on the famous honors society Phi Beta Kappa, with the Phi and Kappa reversed. The early members, all men, boasted such formidable first names as Pierpont, Grosvenor, and Gould. The members wear gold fobs reminiscent of Phi Beta Kappa keys on red ribbons around their necks. Top officers of the organization have intentionally ridiculous titles, such as The Grand Swipe and The Grand Smudge. The society has no clubhouse, and dues were last reported at a mere $450 a year. From the start, it existed mainly for the once-a-year dinner, held to induct new members and install new leaders. Since 1938, the venue has usually been the 20th-floor, rooftop ballroom of the venerable St. Regis, under gilt chandeliers and a dome of pink painted clouds.

The event revolves around the raucous after-dinner performance mounted by the newly minted members, called “neophytes” (although their average age is often over 50). According to accounts from past and current members, the neophytes must show for a pair of four-hour rehearsals a couple of weeks before the show in January. At those sessions, a Broadway choreographer teaches them song-and-dance routines — the songs are popular ditties fit with satirical lyrics mocking the latest scandals and biggest personalities on Wall Street. “The choreographer gets really angry if you don’t learn those routines well,” says one member.

Before the cocktail hour, the neophytes do one final rehearsal in a small room on the main floor of the St. Regis, informally called “the hazing room.” This is the performance many connoisseurs most relish witnessing. The room is totally dark; at one end stand the current and former Swipes, Loafs, and other officers. Neophytes are marched in one at a time. They’re welcomed with what one member describes as a “Dragnet-style spotlight” that blinds them. The neophytes are supposed to preview their numbers to this thankless audience.

The neophytes can’t see their tormentors, nor tell who’s talking. The audience trashes their careers with barbs like, “That was the worst deal ever!” Then they mock the performance itself in profane language. Most neophytes are booed out of the dark room within five minutes. “The whole idea is to get you incredibly nervous before the actual performance,” says one survivor. “The purpose is to make you so terrified you won’t get through the real show.”

During cocktail hour, the recruits stand behind a waist-high fence in what’s called “the bullpen,” usually cross-dressed in their gaudy outfits. “The idea is to take people who are used to being respected and force them to make fools of themselves,” says a member.

At showtime, each neophyte — about 20 are inducted each year — appears solo or does a routine with a couple of partners, accompanied by a six-piece band. The finale is a mock-Rockettes-like extravaganza with everyone onstage.

In 2012, a group of male inductees including billionaire Marc Lasry of Avenue Capital and Warren Stephens of Stephens & Co. donned gold-sequined skirts and falsies to impersonate female cheerleaders. The audience pelted the performers with rolls, petit fours, and napkins dipped in red wine (cheap Chilean cabernet at that). Those details come directly from the New York Times, whose reporter walked into the event. The subsequent story led to a scorching editorial penned by PBS honcho Bill Moyers and his head writer. Moyers vilified the revelers with references to “the gilded age,” “robber barons,” and “Marie Antoinette.”

MORE: My afternoon with Imelda Marcos

It may be that memories of that lambasting caused the organization’s current obsession with keeping, as the leadership likes to say, “what happens at the St. Regis at the St. Regis.” It appears that it’s harder to recruit highly influential members today than in the past. “When some candidates are called, they say, ‘Don’t let me near it!’” says one member. The event is prized by the old guard of Wall Street, retired folks who, in the words of one member, “are not in the limelight now, who don’t have to be careful.” Adds another member, “Now, it’s the old guard, and the young and the brave.”

Indeed, even in the early 1990s, the society counted as members the CEOs of nearly every major banking house on Wall Street. Today, few major CEOs join, though dealmakers, money managers, and execs from firms such as Goldman Sachs (GS) and Barclays (BCS) still sign up. Once they survive the hazing, up-and-coming executives can still use Kappa Beta Phi as a way to network with their elite peers.

This reporter showed up at the event last night, but I quickly realized that I didn’t stand a chance of gaining admission. “After the New York Times reporter crashed, the security has been incredible,” says one member. “You practically have to sign over your first born to get in.”

I took an elevator to the 20th floor ballroom and witnessed people signing in, but I was stopped by two attendants. Back down on 55th Street, I found a door to the hotel marked “Associate and Service Entrance.” I asked the attendant behind the Plexiglas if this were the entrance for the Kappa Beta Phi dinner. “Yes, sir,” he stated. I said I’d return later, but the attendant chased me down the street. “Sorry, I don’t know of any such organization,” he said. “There are no events at the hotel this evening.”

Meanwhile, some of the world’s biggest egos were partying and hazing each other 20 floors above.