Bear Stearns Smoked

Shares tumble toward a new low on a report the CEO was getting high.
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While drug-use allegations waft over

Bear Stearns

(BSC)

, the company's shares are definitely not getting high.

Bear's stock tumbled 4% Thursday, coming within $10 of their early August credit-crunch low, after a report in the

Wall Street Journal

accused the 73-year old Bear CEO of smoking marijuana. The allegation, attributed to "someone who was there," is that Jimmy Cayne and an unidentified woman smoked pot in a men's room at a 2004 bridge tournament in Memphis, Tenn.

The claims came in the service of a story saying Cayne had been out of pocket while his firm suffered through a series of mishaps this summer tied to a pair of imploding hedge funds.

In an internal memo issued this morning to Bear employees, Cayne said, "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." He also denied, without going into any specifics, that he was engaged in anything "inappropriate" as the head of the major investment banking franchise.

A Bear bank executive confirmed the contents of the memo. A call to a spokesman was not returned immediately.

"His decisions have cost people billions of dollars and his decisions have cost people hundreds of jobs," says Dick Bove, banking analyst at Punk Ziegel.

Peter Goldman, an executive at Chicago Asset Management, declined to comment on allegations in the

The Journal

report. But he did say of Bear Stearns' stock, referring to Thursday's financial sector selloff, "This time it's not going down alone -- it's in good company."

The disparaging article comes at a challenging time for big financial firms and their CEOs, many of whom have been under intense fire. The scrutiny has intensified after

Merrill Lynch

(MER)

took the bold step of ousting Stanley O'Neal a week after the firm announced writedowns totaling some $8.4 billion.

Cayne and company have been at the epicenter of the storm since Bear's hedge funds staged an embarrassing collapse during the summer.

An avid bridge player and golfer, Cayne has been accused of not being focused on his firm's business during that period.

Bove comments, "The question is, do you want to put your money with Jimmy Cayne, who is out playing bridge and not getting involved with something that shook your company to the core?"

Bear's stock has dropped about 30% this year and counting. Even so, Cayne has managed to keep his CEO post. But pressure on him and others, including Chuck Prince of

Citigroup

(C) - Get Report

, is mounting.

In the internal Bear memo, Cayne referred to the media flap as "noise" and told his staffers "don't be distracted by the noise. I am certainly not."