Jefferies chiefs take drug tests to refute allegations

Jefferies' chief executive and chairman said on Friday that they and several colleagues had taken drug tests to fight allegations that some of the investment bank's employees are "serial drug abusers".

Rich Handler, chairman and chief executive, and Brian Friedman, chairman of the executive committee, wrote, "of course . . . all tests came back drug free", in a long letter posted on the Jefferies website which defended the institution against lurid charges made during a custody battle involving one of its staff.

"To be frank, we are embarrassed that we even have to discuss these matters, but this should put to rest the heart of the allegations about our firm," the two executives wrote. "Sometimes truth does come in a jar."

The allegations emerged in a suit filed by Christina Kelly, the estranged wife of Sage Kelly, a senior Jefferies healthcare banker, and accused several of the investment bank's staff of using cocaine and other drugs. Mr Kelly and other Jefferies employees named in the suit have denied the allegations.

Mr Handler and Mr Friedman accused Jefferies' rivals of having "piled on, using categorically denied allegations made by one individual as the basis to launch a judgment of everything Jefferies".

Responding at the end of a week in which details of the Kellys' troubles have been laid out in the press and discussed across Wall Street, Jefferies said it could not "sit by silently".

In a letter addressed to its clients and "friends", the bank was highly critical of the media, which it accuses of continuing to "scrounge around for more random titbits to string together". It goes on to warn its clients that they will "hear more lies about us and even hear from reporters who would like to dredge up old news".

The Jefferies management have dealt with allegations about the company in an unusually forthright way in the past, though the claims were of a very different nature.

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The letter capped a difficult week for the bank, which is now owned by Leucadia, a conglomerate that also owns meatpacking and timber businesses.

It also emerged that Jefferies was facing losses of more than $10m on a loan that it had underwritten for Bain Capital's acquisition of Toms, the shoemaker, which it had struggled to sell to debt investors.

But in the last couple of years, Jefferies has looked to profit from the tighter regulation placed on larger rivals such as Goldman Sachs and Morgan Stanley.

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