James Cayne lashes back at WSJ report

NEW YORK (CNNMoney.com) -- Bear Stearns CEO James Cayne fired back Thursday at criticism of his leadership and allegations of inappropriate behavior published in the Wall Street Journal.

The Journal reported that Cayne was playing bridge and golf and was often out of touch from his embattled Wall Street firm this past summer while its hedge funds collapsed and helped to spark a credit crisis in global financial markets.

Cayne said the Journal's allegations are 'absolutely untrue.'

The Journal said that during what it described as 10 critical days of the crisis in July, Cayne was playing in a bridge tournament in Nashville, Tenn., without a cell phone or an email device.

Cayne shot back in a memo to Bear Stearns employees that he "stands by" his 14-year record at the firm and that allegations of "inappropriate conduct" are "absolutely untrue."

The paper also reported that Cayne has sometimes smoked marijuana after bridge tournaments, citing attendees at the tournaments, although the paper did not say whether he did so in Nashville in July.

Cayne denied one specific alleged incident in 2004 that the paper asked about, but it reported that when it asked more generally whether he smoked pot during bridge tournaments or on other occasions, he said he would respond only "to a specific allegation."

In addition for much of the summer the paper reports he typically left the office on Thursday afternoon and played golf at his New Jersey club on Friday, once again out of touch for stretches. The paper cites unnamed associates and golf club records.

Cayne was not using the golf rounds to conduct business, as many executives do, according to what those who played with him told the paper.

"The golf course for him was an escape," John Angelo, a hedge-fund client and frequent golf partner, told the Journal. Another playing partner, talk-show host Maury Povich, told the paper: "Believe it or not, many words are not exchanged about business."

During the Nashville bridge tournament, the paper reports that Cayne spoke with Bear Stearns (Charts, Fortune 500) executives by phone, then played bridge throughout the afternoon.

The paper reports that Cayne's activities contrasted with intense efforts by other Wall Street CEOs during the credit crisis of the summer, including James Dimon of JP Morgan Chase (Charts, Fortune 500), Richard Fuld Jr. of Lehman Brothers (Charts, Fortune 500) and Lloyd Blankfein of Goldman Sachs Group (Charts, Fortune 500)

Cayne, 73, wouldn't comment on his activities away from the office when asked by the paper. Other executives defended his involvement in the firm to the paper.

"Anyone who thinks that Jimmy Cayne isn't fired up every day and ready to get to work hasn't been living in my world," Bear Stearns President Alan Schwartz told the paper.

Samuel Molinaro Jr., Bear's chief operating and financial officer, also told the paper, "I've never had a problem reaching him."

But Angelo told the paper that Cayne follows his club's policy which prohibits carrying a cell phone or email device while golfing.

Filings with the SEC show that in 2006 Cayne received $33.9 million, and as of Jan. 31 held 6.4 million shares in the firm, equal to 5.3 percent of shares outstanding. That gave him more than a $1 billion stake in the company at that time, although shares have plunged more than 30 percent since that time.

Bear Stearns shares fell another 4 percent in morning trading Thursday following the Journal report, although a broad sell-off in the market was hitting the shares of other brokerage firms as well.

Warren Spector, who at the time was co-president of Bear Stearns, also was at the Nashville bridge tournament with Cayne in July, the paper reported. He oversaw Bear Stearns Asset Management, the division that included the two hedge funds that lost billions during the crisis by making bad bets on securities backed by subprime mortgages.

The paper said that after Cayne returned to New York from the tournament, he called Spector on Aug. 1 and said that he had lost confidence in him and that he should resign. The paper, citing people familiar with his thinking, said that Cayne was annoyed that Spector had been away from the office during the fund crisis. Spector's resignation was announced Aug. 5.