Today’s Wall Street Journal reported in an article by Kate Kelly that the criminal investigation into the collapse of two internal Bear Stearns hedge funds could hinge on whether the funds’ managers misled investors during a conference call in the Spring of 2007.
In an investor call held on April 25, 2007, Ralph Cioffi, the funds’ manager, said that he was “cautiously optimistic” about Bear’s ability to hedge its securities tied to subprime home loans. One month earlier, however, Cioffi had moved $2 million of his own money out of one of the two troubled funds and into a newer and less risky Bear internal fund. At the same time, Cioffi was engaging in discussions with colleagues ? some of which were conducted by email ? about the worrisome state of credit markets and whether the declines in the subprime securities would be trouble for his funds.
Prosecutors in the US Attorney’s Office in Brooklyn, New York are examining whether any disparity between the public and the private comments of Cioffi and others could constitute fraud. No grand jury subpoenas have yet been issued.