Bear Stearns (NYSE: BSC) James Cayne has been forced to defend his reputation, and respond to unusual allegations for the CEO of one of the world's top investment banks:

Yesterday's Wall Street Journal discussed (subscription required) rumors of Mr. Cayne's use or marijuana as a coping mechanism in the wake of the subprime debacle and the high-profile collapse of two Bear Stearns hedge funds. Now, Cayne is denying that he smoked weed at a 2004 bridge tournament, and denied that he engaged in any "inappropriate conduct".

Of course, there's an argument to be made that presiding over the implosion of two hedge funds due to huge overexposure to subprime is "inappropriate conduct". It's probably something investors should worry about more than whether Cayne did or didn't smoke pot. But Cayne's denial may not be completely categorical:

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.

if the allegations are wholly without merit, and Mr. Cayne doesn't smoke pot at all, why wouldn't he just say that? Paradoxically, some analysts see this as good news, as it could expedite a sale -- Mr. Cayne would probably rather sell the company than be pushed out in a drug scandal.

Bear Stearns CEO Cayne says he didn't smoke doobies ... at that bridge tournament originally appeared on BloggingStocks on Fri, 02 Nov 2007 13:44:00 EST. Please see our terms for use of feeds.