Federal prosecutors have brought the first criminal case related to the subprime mortgage meltdown. A federal indictment brought by the U.S. Attorney’s Office for the Eastern District of New York which was unsealed on Thursday, June 19, alleges that former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, deceived investors. The two were accused of securities fraud, wire fraud, and conspiracy. In addition, Cioffi was charge with one count of insider trading.
According to the 27-page indictment, when subprime mortgage problems began driving down the value of the Bear Stearns hedge funds the two managed, they not only hid the truth from investors but went as far as to tell investors to put more money into the funds even as they began to sour.
Prosecutors, who relied heavily on e-mails between the defendants and their colleagues to build the case, also used statements made to investors between March and June 2007. In the weeks following March 2, Cioffi and Tannin talked up their funds to salesmen while glossing over investor concerns about the troubled subprime market. On one occasion, Cioffi downplayed the fact that a major investor wanted to cash out $57 million it held in the funds for fear that admission of the move would spark alarm.
Cioffi is also alleged to have committed insider trading by withdrawing $2 million of the $6 million he had invested in his funds without notifying investors. The monies were moved into another Bear Stearns fund, which posted healthy returns.
In an unusual move in a white-collar criminal case, the two were not permitted to surrender to authorities. Instead, the FBI arrested them at their respective homes on Thursday morning and brought them to court in handcuffs.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors in claims against Bear Stearns. For further information, please contact us.