Legal News

Prosecution of Bear Fund Managers Gets Underway in Brooklyn

By Amir Efrati

Indicted former Bear Stearns fund manager Matthew Tannin being escorted to the courthouse. (Credit: Associated Press)

Earlier this afternoon, yours truly strapped on a suit and tie, walked into the mid-90s heat and took a subway ride to the newly built 225 Cadman Plaza East in downtown Brooklyn, a/k/a U.S. District Court for the Eastern District of New York.

Why did we torture ourselves so? To see Judge Frederic Block hold the first status hearing in the the most high-profile case to emerge from the global credit crisis: the prosecution of Ralph Cioffi and Matthew Tannin.

The two former Bear Stearns hedge fund managers last month were charged with conspiracy, wire fraud and securities fraud in connection with their hedge funds’ collapse last year. Cioffi was also charged with insider trading. (For previous coverage, click here, here and here; click here for a profile of Block.)

In the end, the mere five-minute hearing was a bit of a let-down. Block said the case qualified as complex and wouldn’t necessitate a speedy trial, and assistant U.S. attorney Patrick Sinclair, flanked by lead prosecutors Sean Casey and the recently promoted John Nathanson, said the government is weighing additional charges against the defendants, who were sharply dressed.

Sinclair didn’t elaborate on what the charges might be but said the government would aim to file them by early fall.

Last week, Business Week gave us a window into what the new charges might look like. The magazine reported that investigators are gathering evidence about possibly false statements the defendants made to the funds’ lending and trading partners, including Barclays and Dresdner Bank, of Germany.

One charge could involve an exchange, already described in the current indictment, between Tannin and bank from which the funds borrowed money, identified by the magazine as Dresdner Bank. Cioffi allegedly understated the growing number of investors who wanted to pull their money out of the funds in May 2007.

Another criminal charge could mirror a civil charge currently found the Securities and Exchange Commission’s parallel complaint against the defendants. The agency said the executives persuaded Barclays–referred to as “Bank No. 1″ in the suit–to sink $100 million into one of the ailing funds in February 2007 after provided the British bank with false performance figures for the portfolios.

Full post as published by Law Blog - WSJ.com on July 18, 2008 (boomark / email).