Jefferies Loses Clients In Wake of Messy Scandal

Investment bank Jefferies and Co. (NYSE:JEF) has lost as many as five clients in the wake of ugly revelations related to a messy divorce case involving one of the firm’s top health care bankers, the FOX Business Network has learned.

Meanwhile, the banker, Sage Kelly, has taken a leave of absence from the firm, according to a memo distributed by Jefferies and obtained by FOX Business. Ben Lorello, head of investment banking, will oversee the healthcare team in the interim.

People inside Jefferies tell FOX Business that the former clients of the health care team suspended their relationships with Jefferies after Sage Kelly’s wife Christina, alleged in a deposition that her banker husband abused drugs and engaged in wild sex binges in exchange for business from clients. Kelly, who heads the firm’s health care group, vehemently denies the charges, but these people say  that one client cited a “morality clause”  in their contract with Jefferies for its decision.

The allegations have become the talk of Wall Street since details were reported by the press, including Fox Business, earlier in the week.

A spokesman for Jefferies had no comment but wouldn’t deny that the firm has lost clients in their healthcare group amid the furor. Kelly declined comment.

“There is rightly a concern that leaders, who often help define organizations they run, actually set a standard for the character of the organizations themselves,” said Scott Lerman, the chief executive officer of Lucid Brands, a branding company.

The internal Jefferies memo, released earlier today, said: “In an effort to deal with these matters, Sage Kelly has requested a voluntary leave of absence. Sage is embroiled in a deeply personal situation and, as such, we have decided to accept his decision to take time off to focus on doing what is in the best interests of his children.”

The memo also said: “We cannot express how deeply we regret the agony and distraction that this caused all of us, not to mention our clients, each of whom has categorically denied the allegations.”

Kelly, a rising star on Wall Street, had been accused by his wife in court papers related to their ongoing divorce proceedings of an array of unseemly activities. Among other things, the wife accused Kelly of facilitating a sexual encounter between her and a potential Jefferies client in order to seal a big deal for her husband. Moreover, the papers say Kelly and a select group of colleagues and Wall Street friends regularly consumed massive amounts of illegal drugs, mostly cocaine. The papers also alleged Kelly had defecated and urinated in his bedroom.

All of the individuals named in Christine Kelly’s suit denied the allegations.

Kelly, who was hired away by Jefferies in 2009 after establishing a lucrative business at UBS,  and his wife have been trading ugly accusations in their contentious divorce case as they battle for custody of their two children.