Jefferies mounts challenge against Wall Street norms with drug tests

In the clubby world of Wall Street, Jefferies Group is the aggressive start-up that relishes taking on the bigger, more established firms by following its own rules.

So after the estranged wife of a Jefferies banker claimed that cocaine abuse was widespread at the company, chief executive Richard Handler paid a visit to the health care banking group last week and invited them to join him in taking a drug test.

He sent out a memorandum that the tests were negative and accused rivals at larger banks of spreading the "lurid details" of allegations that he called "pure fabrication".

Handler has taken a Los Angeles-based stock-trading shop and transformed it over two decades into a New York-based investment bank that is seeking to compete with firms such as Goldman Sachs Group and JP Morgan Chase in merger advice and bond underwriting. After surviving a crisis of confidence sparked by a negative analysts' report, Handler engineered a 2013 sale to Leucadia National Corp that left him in charge of both companies.

"They're not Goldman Sachs but they're the up-and-coming, scrappy, classic investment bank," said Jeffrey Bronchick, co-founder of Cove Street Capital. Handler has "made a lot of money, he's made people a lot of money. He's aggressive, and I'm all for that".

Leucadia has fallen 16 per cent this year as of last week, the worst performance in the S&P 500 Financials Index, which gained 9 per cent. Like some of its competitors, Jefferies has not produced a return on equity above 10 per cent in any of the past three years.