Corporate & Securities Law

SNSFE Continues To Investigate Bear Stearns High Grade Structured Credit Strategies Hedge Funds, As Portfolio Managers Indicted For Fraud And Conspiracy

By James Eccleston

The Securities and Exchange Commission has charged two former Bear Stearns Asset Management portfolio managers for fraudulently misleading investors about the financial state of the firm's two largest hedge funds and their exposure to subprime mortgage-backed securities before the collapse of the funds in June 2007.

The SEC's complaint alleges that when the hedge funds took increasing hits to the value of their portfolios during the first five months of 2007 and faced escalating redemptions and margin calls, then-BSAM senior managing directors Ralph Cioffi and Matt Tannin deceived their own investors and certain institutional counterparties about the funds' growing troubles until they collapsed and caused investor losses of approximately $1.8 billion.

The SEC's action was conducted through its Enforcement Division's subprime working group, which is aggressively investigating possible fraud, market manipulation, and breaches of fiduciary duty that may have contributed to the recent turmoil in the credit markets.

In a related criminal action, the U.S. Attorney's Office for the Eastern District of New York announced the indictment of Cioffi and Tannin on conspiracy and fraud charges.

According to the SEC's complaint, filed in the U.S. District Court for the Eastern District of New York, the Bear Stearns High-Grade Structured Credit Strategies Fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund collapsed after taking highly leveraged positions in structured securities based largely on subprime mortgage-backed securities. 

SNSFE attorneys continue to investigate these hedge funds and welcome investors comments.

Source:  SEC News Digest

Full post as published by FinancialCounsel on June 24, 2008 (boomark / email).