Bear Stearns CEO says pot smoking story untrue

By Walden Siew

NEW YORK (Reuters) - Bear Stearns Cos Inc BSC.N Chief Executive Jimmy Cayne denied he "engaged in inappropriate conduct" after a Wall Street Journal article said on Thursday he smoked marijuana with a woman in a Memphis hotel bathroom.

The newspaper cited unidentified sources to describe the 2004 pot smoking incident, which Cayne said was untrue.

Fox-Pitt Kelton analyst David Trone said the mere accusation alone will make it difficult for Bear Stearns' board to support the 73-year-old Cayne.

Cayne has been criticized for spending too much time playing bridge and golf while Bear stumbled this summer on wrong-way bets on subprime mortgages. Two Bear-run hedge funds collapsed, a crisis that unfolded as Cayne, a world-class bridge player, competed in a tournament in Nashville.

"I stand by the record of success the firm has had over the 14 years that I have had the privilege of leading this great organization," Cayne told employees in a memo obtained by Reuters. "I remain, as I have been for many years, intensely focused on our business."

Bear shares, however, are down 34 percent this year. On Thursday, they fell $5.66, or 5 percent, to close at $107.94, about in line with the drop in the Amex Securities Broker Dealer index .XBD.

Trone said he disagrees with accusations that Cayne's personal interests have interfered with his ability to run the company. "Bear's stock and earnings have risen dramatically over the past few years, and Cayne didn't just take up golf and bridge in 2007," he said.

The Fox-Pitt Kelton analyst suggested that Cayne could retain his post as chairman and elevate Bear Stearns President Alan Schwartz as CEO.

The Journal article, citing unidentified sources, said Cayne had smoked pot after attending bridge tournaments.

"Mr. Cayne invited a fellow player and a woman to smoke pot with him, according to someone who was there, and led the two to a lobby men's room where he intended to light up," the newspaper reported. "The other player declined, says the person who was there, but the woman followed Mr. Cayne inside and shared a joint, to the amusement of a passerby."

Cayne denied the account.

"There is no chance that it happened," he told the Journal. "Zero chance."

In a memo signed "Jimmy" to Bear Stearns employees, Cayne asked them not to be distracted by the story.

"The article also alleges I engaged in inappropriate conduct outside the firm. As I stated in the story, this is absolutely untrue," Cayne's memo said.

"Thank you for your continued dedication to Bear Stearns, and don't be distracted by the noise," Cayne said. "I am certainly not."