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)
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