![Sage Kelly, a managing director at the investment bank Jefferies, leaving court. As part of a custody filing, his wife accused him of illegal drug use.](https://webarchive.library.unt.edu/web/20141106195633im_/http://graphics8.nytimes.com/images/2014/11/04/business/Sorkin/Sorkin-articleInline.jpg)
“We went to our partners in health care investment banking yesterday afternoon and said, ‘The two of us are going to go take a drug test, and do you want to join us?’ ”
That’s what Richard B. Handler, the chief executive of the investment bank Jefferies, wrote in a memo to clients late last week, which was also signed by Brian Friedman, the chairman.
The drug test, and the memo, came in reaction to scandalous accusations made against a managing director in its health care practice as part of a divorce and custody filing that has become the talk of Wall Street.
The managing director, Sage Kelly, was accused by his wife, Christina, of abusing “alcohol, cocaine, mushrooms, Special-K, heroin” and other drugs like ecstasy. Special-K is the street name for ketamine. She contended he once become “so drunk at the annual party that he hosts for members of his department at Jefferies & Company that he began to urinate” and listed various Jefferies employees and clients that she said did drugs with him.
Perhaps most startling, she contended that “Sage — during a night of debauchery — instigated a sexual encounter in which he had sexual intercourse with the girlfriend of a client, Marc Beer, and Marc had sexual intercourse with me.”
Mr. Kelly has denied all of the accusations, and Mr. Beer, the chief executive of Aegerion Pharmaceuticals, said the incident never happened. The other employees of Jefferies mentioned in the filing also denied doing drugs with Mr. Kelly.
Nonetheless, the claims have become a sensation among the financial world and beyond, in part because they seemed to confirm the worst suspicions about an industry that has long been portrayed as outlandish in films like “The Wolf of Wall Street.”
Which brings us back to Mr. Handler’s memo and the impromptu drug test. The negative attention for Mr. Kelly and Jefferies may linger as much for the firm’s response as for the situation’s salacious gossip value.
Rather than just putting out a boilerplate statement saying that the firm doesn’t tolerate drug use, Mr. Handler defended Mr. Kelly, made an impassioned case that his firm was being unfairly smeared and somehow ended up marching an army of bankers into a drug test in the middle of the day after approaching other members of Mr. Kelly’s team.
“Our global head of investment banking and the three other investment bankers mentioned in the custody-case papers as alleged serial drug abusers stood up and each said, ‘I do,’ ” when he asked if they wanted to join him for the drug test, he wrote in his memo. “Every one of our other health care managing directors then volunteered to come with us. They were not even mentioned in any document, but they chose to do this to show solidarity with their partners and also prove that suggestions of rampant drug use are pure fabrication.”
There’s something authentic and admirable about Mr. Handler’s reaction. He is an emotional, larger-than-life leader; he takes anything involving the firm personally and does so without any filter. He likes to confront challenges head on.
But his passion may be overwhelming his logic in this case. He has ruled out acknowledging the possibility of a problem at the firm or even the chance that Mr. Kelly may have hidden demons; he denies them outright. Yet Mr. Kelly has acknowledged recreational drug use in the past.
To some of his clients, Mr. Handler’s memo made him a hero who demonstrated his passion. For others, the memo and the drug test were a bizarre publicity stunt. (Despite some of Christina Kelly’s most outrageous accusations, she never actually contended that Jefferies’s headquarters was some kind of high-end crack den. The idea that Mr. Kelly’s colleagues passed the drug test is almost irrelevant.)
It is within the realm of possibility that Christina Kelly’s accusations against her husband are exaggerations or even outright falsehoods. She is involved in an ugly custody battle, and her husband submitted a videotape of her snorting cocaine as an argument for custody of their children. She failed a drug test and is seeking drug counseling.
But her decision to unleash the accusations was the nuclear option, one with long-lasting and potentially devastating consequences for her life, Mr. Kelly’s and their children’s. Mr. Kelly has left Jefferies temporarily, more than likely cutting off a steady income. Depending on the outcome of the case, it may be hard for him to get another job, especially not one as well paying as his role as a senior banker.
While some parents might lie for their children, it is hard to believe that Christina Kelly’s story is entirely fiction. After all, in addition to the drug use, she has declared in public that she had sex with her husband’s client. Regardless of the truth, her children will have to read that. Her motivation and the full truth may never be known.
Whatever the case, questions will linger about what Jefferies knew or didn’t know — or should have known. Jefferies has always been a hard-charging, scrappy firm. It has never tried to be a white-shoe firm. That has always been part of its ethos, an “us against them” mentality.
But that approach may expose it to more reputational risk than it can always control, or its clients — and the prying eyes of the public — are willing to accept.
“We expect you will hear more lies about us and even hear from reporters who would like to dredge up old news because, at this point, there is absolutely nothing new to write about the unfortunate custody proceeding,” Mr. Handler wrote in his memo. “Good news does not sell newspapers, but you, our clients, know us and know how we do business.”