Legal News

Indicting the Credit Crisis: Bear Fund Managers May Face Charges

By Dan Slater

Back in February, we noted that EDNY prosecutors were asking whether the incongruity between the public and private comments made by a couple of Bear Stearns hedge fund managers could constitute fraud. Today, WSJ colleague Kate Kelly reports that the feds, following a nearly year-long investigation, have indicated that indictments of former Bear fund managers Ralph Cioffi and Matthew Tannin could be in the offing, though evidence could emerge that would change that.

The indictments would represent the first criminal charges against Wall Street executives arising from the credit crisis that began to come to light around this time last year. During the investigation, however, Cioffi has reportedly said that he and Tannin, who both managed high profile bond portfolios, were grappling with the fast-changing dynamics in mortgage markets just as the rest of the financial world was, and didn’t mislead anyone.

A lawyer for Tannin declined to comment. A lawyer for Cioffi did not return a call seeking comment.

In February 2007, when the subprime-mortgage market began to cool off, Cioffi and a number of his colleagues reportedly remained upbeat, telling investors that a meltdown in the sector was “unlikely to occur.” But the next month, after an index that tracks subprime-mortgage securities had dipped, Cioffi received permission from the firm’s compliance officials to move $2 million of the $6 million he personally had invested in the fund into a separate internal fund called Structured Risk Partner.

In April 2007, Cioffi exchanged emails with colleagues in which he expressed concerns about the credit markets, and wondered how a downturn might affect his investors, according to people familiar with the matter. In an April 25 call with fund investors, however, he sounded an upbeat note, telling participants he was “cautiously optimistic” about his and Tannin’s ability to hedge their portfolio.

Full post as published by Law Blog - WSJ.com on June 16, 2008 (boomark / email).