Former Bear Stearns Hedge Fund Managers Indicted

NEW YORK (Reuters)- Two former Bear Stearns hedge fund managers were arrested andindicted on securities fraud charges on Thursday following a federalcriminal probe into the collapse of two funds they oversaw.

The former managers, Ralph Cioffi and Matthew Tannin, surrendered toofficials and are expected to be arraigned later on Thursday on wireand securities fraud charges.

The indictment said the fund managers lied about the funds’prospects despite liquidity concerns and outlook for the market. Theindictment also stated that one of the managers transferred a portionof his own investments from one of the funds but did not tell investorsabout the move.

The collapse of the two funds helped kick off the credit crisis bystoking widespread fears about investments linked to risky subprimemortgage loans.

The collapse spurred questions about the oversight and riskmanagement operations at Bear Stearns, which was sold in March toJPMorgan Chase & Co in an emergency takeover deal brokered by theU.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 Fedand Treasury, and dozens of the largest financial institutions havelost over $300 billion to date on the same investments," Edward Little,an attorney at Hughes Hubbard and Reed who represents Cioffi, said in astatement. "Ralph Cioffi’s funds lost money in exactly the same way.Because his funds were the first to lose might make him an easy targetbut doesn’t mean he did anything wrong."

Susan Brune, an attorney at Brune & Richard LLP representingMatt Tannin said: "Matt Tannin is innocent. He is being made ascapegoat for a widespread market crisis. He looks forward to hisacquittal."

Cioffi and Tannin are expected to appear at Brooklyn court at about 2 p.m. EST

Cioffi met authorities at a prearranged location and Tanninsurrendered 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 andphotographers outside New York’s Federal Plaza building, where the FBIhas 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)