Former Bear Stearns Hedge Fund Managers IndictedBy Reuters - | Posted 2008-06-19 Print
The indictment said the fund managers lied about the funds' prospects despite liquidity concerns and outlook for the market, and that one manager transferred his investments from the fund.
NEW YORK (Reuters) - Two former Bear Stearns hedge fund managers were arrested and indicted on securities fraud charges on Thursday following a federal criminal probe into the collapse of two funds they oversaw.
The former managers, Ralph Cioffi and Matthew Tannin, surrendered to officials and are expected to be arraigned later on Thursday on wire and securities fraud charges.
The indictment said the fund managers lied about the funds' prospects despite liquidity concerns and outlook for the market. The indictment also stated that one of the managers transferred a portion of his own investments from one of the funds but did not tell investors about the move.
The collapse of the two funds helped kick off the credit crisis by stoking widespread fears about investments linked to risky subprime mortgage loans.
The collapse spurred questions about the oversight and risk management operations at Bear Stearns, which was sold in March to JPMorgan Chase & Co in an emergency takeover deal brokered by the U.S. Federal Reserve.
The U.S. Attorney's Office in Brooklyn, New York, had been investigating the funds' collapse.
"The subprime crisis took everyone by surprise, including the Fed and Treasury, and dozens of the largest financial institutions have lost over $300 billion to date on the same investments," Edward Little, an attorney at Hughes Hubbard and Reed who represents Cioffi, said in a statement. "Ralph Cioffi's funds lost money in exactly the same way. Because his funds were the first to lose might make him an easy target but doesn't mean he did anything wrong."
Susan Brune, an attorney at Brune & Richard LLP representing Matt Tannin said: "Matt Tannin is innocent. He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
Cioffi and Tannin are expected to appear at Brooklyn court at about 2 p.m. EST
Cioffi met authorities at a prearranged location and Tannin surrendered after waiting for officials outside his residence, according to a person familiar with the matter.
Law officials escorted the two men in handcuffs past media and photographers outside New York's Federal Plaza building, where the FBI has its local offices.
(With reporting by Randall Mikkelsen, Ellen Wulfhorst, Joseph A. Giannone, Chip East and Emily Chasan)
(Reporting by Chelsea Emery; Editing by Steve Orlofsky)
© Thomson Reuters 2008 All rights reserved
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