Bear Stearns Fund Managers Indicted

Posted by: Ben Steverman on June 19, 2008

By Matthew Goldstein and David Henry

Ex-Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin are now the first Wall Street executives to face criminal charges arising from the mortgage market meltdown. A federal grand jury in Brooklyn, NY indicted the pair on securities fraud charges on June 18, sources familiar with the nearly year-long investigation say.

Click here to see a copy of the indictment.

Prosecutors are set to announce the filing of charges against Cioffi and Tannin at an afternoon press conference on Thursday. Both men are already in custody and awaiting arraignment in Brooklyn federal court. The filing of criminal charges against the former hedge fund manager would be coupled with the filing of a civil complaint by the Securities and Exchange Commission. An SEC spokesman declined to comment. A spokesman for Eastern District of New York US Attorney Benton Campbell declined to comment.

Sources say attorneys with the SEC are planning to attend a joint press conference with federal prosecutors to announce the filing of charges. Lawyers for Cioffi and Tannin have hired a public relations firm to manage the expected flood of media inquiries. Andy Merrill, the spokesman, says he has no comment at this time.

The investigation is believed to be focusing on comments Cioffi and Tannin made to investors in the funds, as well as to the lending desks of the big Wall Street banks that lent the hedge funds money. In early 2007 the managers told investors and the Wall Street firms that the funds were performing well, even as the pair scrambled to keep them afloat. Prosecutors have focused on those statements as well as Cioffi’s decision to move some of his money out of the funds before they collapsed.

The failure of the Bear funds wiped out $1.6 billion investor capital and led to a spate of litigation. At one point, the two funds controlled nearly $30 billion in mortgage-related securities and were one of the bigger buyers of collateralized debt obligations. The demise of the Bear funds sparked the broader collapse of the market for securities like CDOs, a conglomeration of pieces of bonds that are backed by subprime mortgages, and set off a tightening of the credit markets that persists today.

Reader Comments

Midwest

June 19, 2008 12:25 AM

Rob a bank and you get a ten year minimum sentence. Rob investors and you get a seven digit severance check and a great reference letter.

These guys need a public flogging and all their assets stripped to nothing. Their greed and gall is breathtaking. I pray they see the inside of a jail cell for many years. They're little more than crooks with a pedigree.

Wu Sheng Lung

June 19, 2008 1:24 AM

How clever of the Bear fund managers.
They were bearish on the fund they managed.

Karl

June 19, 2008 9:22 AM

Didn't these two fund managers have bosses that should have known what was going on? I'll bet if these two guys had made GOOD investments their BOSSES would be receiving most of the praise! However, it's easy to put ALL the blame on them now. They are obviously at fault too, but so are the ones that RUN THE COMPANY!!!!!!!!!!!!

Chris

June 19, 2008 10:27 AM

The most interesting part of the whole collapse is if Hank Paulson wasn't Secretary of the Treasury, I wonder if Goldman, who also orchestrated a number of these deals, wouldn't be looking at their demise instead. It's not what you know, it's who you know. I cannot wait until the gas futures fiasco that is driving up everyone's prices (gas and consumer durables alike) gets a closer look. The deep dark secrets of Wall Street, with tax-payers once again paying the price.

Gordon

June 19, 2008 12:34 PM

I agree that there are a lot of greedy hedge fund managers out there, but to their defense, many financial institutions did not forcast the crash coming as hard and bad as it did. You can say that a lot of the investments that the Bear managers made were indeed stupid, but hindsight is always 20/20. I know this is a complicated matter involving perhaps misrepresentations from the managers, but the investors of the fund should be partially responsible.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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