Ralph R. Cioffi, the former manager of the two Bear Stearns hedge funds whose collapse last year triggered the credit crisis, is the prime suspect in investigations by the Justice Department and the SEC as reported recently by BusinessWeek.com.
The investigations are proceeding on two fronts: first, whether Cioffi and his team deliberately misled investors about the funds’ health; and second, whether Cioffi and his team placed false values on collateralized debt obligations (CDOs).
The issue of CDO valuation ? valuation based on internal models rather than actual market values ? had been controversial ever since the CDO market collapsed in 2007. The BusinessWeek.com article contained the following quote: “If the valuations become a criminal issue [for] Bear Stearns, it would send a warning shot across the bow of every firm that marketed these exotic products,” said Steven B. Caruso, an attorney representing several Bear investors who is part of the coalition representing subprime investors in which Page Perry participates.