An Unexpected Apology Stokes the Embers of a Feud

When it comes to Wall Street grudge matches, this one is sure to rank right up there.

Two years ago, Sean Egan, the managing director of the upstart credit ratings agency Egan-Jones, cut the rating on the investment bank Jefferies and criticized the firm on CNBC, Fox Business Network and Bloomberg Television and elsewhere. He called Jefferies “unsustainable,” and his comments sent the firm’s stock into a tailspin, raising concerns that Jefferies might have to file for bankruptcy.

At the time, Wall Street was already on edge. MF Global, the commodities brokerage firm, had just filed for bankruptcy, and customer money was missing.

Richard B. Handler, the chief executive of Jefferies, went on the counterattack. He argued that the analyst’s report was littered with inaccuracies, noting that it said 77 percent of the firm’s shareholder equity was invested in the same bonds that took down MF Global while failing to mention that Jefferies had hedged the position, which more than offset its exposure.

The storm clouds eventually lifted, Jefferies stock rebounded, and Mr. Handler thought he had seen the last of Mr. Egan.

But a few weeks ago, Mr. Handler received an email that stopped him in his tracks.

“I would like to apologize for harm caused to you,” Mr. Egan wrote.

Mr. Handler said he was walking down the stairs to catch the E train when he got the email, and “spent the entire subway ride to work in shock.”

Reconciliation can be difficult on Wall Street, a pressure cooker where big egos and long memories can nurse feuds and fuel animosity for years. In this case, it wasn’t made easier by the fact that Mr. Egan, 56, is something of an outsider on Wall Street, while Mr. Handler, 52, a former trader at the bond powerhouse Drexel Burnham Lambert, is one of its longest-serving players. This account is based on the exchange of emails, and interviews with a number of people at the two firms.

After receiving Mr. Egan’s email, Mr. Handler shot back: “You were relentless in the public media and often had the wrong facts. Whenever we were able to prove you wrong, you quickly moved to another reason why we were at risk. In a time of panic, this behavior is beyond dangerous.”

He added: “If you can accept what I say and want to come in and have an honest conversation, I will meet with you and it will be productive. If you are going to just rehash the same things you used on TV to try to justify your actions when you were proven wrong, I feel very sorry for you as a human being. This may be your only chance to actually grow from this experience.”

Mr. Egan still wanted to meet. “I agree with you and I would like to apologize,” he responded.

Heads turned last month as Mr. Egan strolled across the expansive Jefferies trading floor in Midtown Manhattan. In Mr. Handler’s glass-enclosed office off the trading floor, Mr. Handler and Brian Friedman, chairman of the executive committee at Jefferies, were already waiting.

“I want to apologize because I had no idea my report would cause you so much pain,” Mr. Egan began. “I feel really bad about it.”

“That is a complete lie,” Mr. Handler said, contending that every time Jefferies rebutted one of Mr. Egan’s allegations a new one popped up. “You wouldn’t stop. You were relentless.”

About 15 minutes into the meeting, Mr. Egan removed his suit jacket.

Mr. Handler suggested that if Mr. Egan were truly sorry, he should go on television and “tell the truth and publicly apologize.”

“What do you want me to say?” Mr. Egan asked, requesting a pen and sheet of paper. Mr. Handler started drafting a list as Mr. Egan took notes.

“Say, ‘My name is Sean Egan and I am sorry and I was wrong about the facts,’ ” Mr. Handler said. “Also add that your actions caused near-irreparable harm to 4,000 families and that this is the first step in regaining your reputation and humanity.”

Mr. Handler offered to call the CNBC reporter David Faber to see if would be willing to interview Mr. Egan. The ratings agency executive said he would need to confer with his board first.

In an interview, Mr. Handler said he emerged from the meeting convinced that Mr. Egan felt he had gotten things wrong and would go on television to apologize.

Mr. Egan said his goal in meeting the Jefferies senior management team was to “clear the air.”

“I expected Mr. Handler to be gracious and to move on,” Mr. Egan said. “Unfortunately that did not occur. Instead, he and an associate grilled me for 30 minutes about the supposed damage from our not elaborating on their firm’s short positions.”

Mr. Egan added that short positions rarely provided a complete offset to long exposures, and his report referred readers to a regulatory filing on the various investments.

The next morning Mr. Handler wrote Mr. Egan, telling him Mr. Faber had agreed to interview him on CNBC.

Mr. Egan later responded that his board had voted against his appearing on CNBC. Mr. Egan abstained from voting, the note said.

“I have a great deal of respect for what you and your team have built and hold no animosity towards you or Jefferies. I wish you well,” he added.

Mr. Egan said in an interview that he stood by his initial report, and that it was not unusual for companies to disagree with ratings downgrades.

“Our actions were subsequently vindicated by the actions of other ratings firms and by Jefferies’s raising additional capital via a sale,” he said.

Mr. Handler said Mr. Egan’s downgrade was never the relevant factor. What caused the panic was Mr. Egan’s failure to mention in his report that Jefferies had hedges on its investments, and his multiweek public attack on the firm.

A year after the ratings downgrade, Jefferies announced it was merging with the Leucadia National Corporation, one of its biggest shareholders. The rating for Jefferies was blended with that company’s, which was lower.

“Thankfully the truth won out here,” Mr. Handler said. “I hope our experience prevents this from happening to another company.”