CEO OF CRISIS-HIT BEAR DENIES HE USED MARIJUANA

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.