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Ceo Of Crisis-hit Bear Denies He Used Marijuana

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NEW YORK -- Bear Stearns Cos. Chief Executive James Cayne, in an email to the securities firm's 15,000 employees, said he hadn't "engaged in inappropriate conduct," a response to a Wall Street Journal article about his handling of the credit-market crisis that included details of his marijuana use.

Mr. Cayne, 73 years old, said he was "intensely focused" on the firm's business and denied that he had smoked marijuana at a 2004 bridge tournament in Memphis as reported by the Journal.

A page-one article yesterday examining Mr. Cayne's leadership of the firm said he has used marijuana in more-private settings, according to people who say they have witnessed him doing so or participating with him. The bulk of the article detailed how Mr. Cayne played bridge and golf outside the office during a critical period in the summer, when two of Bear's hedge funds imploded. In the Journal article, Mr. Cayne denied emphatically that the 2004 pot incident occurred. "There is no chance that it happened," he said in the article. "Zero chance." Asked more generally whether he smoked pot during bridge tournaments or on other occasions, Mr. Cayne said in the article that he would respond only "to a specific allegation," not to general questions. In a note to clients, Punk, Ziegel & Co.'s Richard Bove said "the article clearly places the company in play" because Mr. Cayne would more likely sell Bear than retire "in disgrace." The analyst added that he has placed sell recommendations on every brokerage stock except for Bear because of his belief that the firm could be a compelling acquisition target. David Trone, a securities analyst at investment bank Fox-Pitt Kelton Cochran Caronia Waller, suggested that the notion of drug use could make Mr. Cayne's position untenable. But he added that criticism of Mr. Cayne's performance was largely undeserved. "The collapse of Bear-branded hedge funds creates limited consequence to the company itself," wrote Mr. Trone, who has a buy rating on Bear shares.

Bear's shares fell 5%, to $107.94 in 4 p.m. New York Stock Exchange composite trading amid a broader market swoon and steep declines by financial firms.

Mr. Cayne found himself on the hot seat in June and July, when two prominent Bear hedge funds collapsed after their bets on risky mortgage-related securities went bad. Bear's reputation for savvy risk management was tarnished as the cash-strapped funds sank in value, making them unable to repay their debts or return money to investors.

Late in July, with no other options, the funds began bankruptcy proceedings. Days later, Mr. Cayne forced out Warren Spector, the Bear co-president who had overseen the asset-management division under which the two funds had been housed. He left Aug. 5.

In yesterday's memo, Mr. Cayne said: "Don't be distracted by the noise. I am certainly not." He described his 14-year tenure as a "record of success." Bear didn't issue a formal statement, and a spokeswoman didn't respond to requests for comment.

Source: Wall Street Journal (US)
Copyright: 2007 Dow Jones & Company, Inc.
Contact: wsj.ltrs@wsj.com
Website: Business Financial News, Business News Online & Personal Finance News at WSJ.com - WSJ.com
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