Bear Stearns Pair Surrenders To Feds

Ex-Hedge Fund Managers Face Criminal Charges Over Misleading Investors On Subprime Market

(CBS/ AP)  Two former Bear Stearns managers were arrested Thursday on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, federal authorities said.

Matthew Tannin was taken into custody outside his New Jersey home on Thursday morning and Ralph Cioffi was arrested at his New York City home, the FBI said. They became the first executives to be charged criminally in the wake of the subprime market debacle.

An indictment unsealed in federal court charged both men with securities and wire fraud, and Cioffi with insider trading. The U.S. attorney's office in Brooklyn planned a news conference later Thursday.

Meanwhile, The FBI said it has arrested about 300 real estate brokers since March - including dozens over the last two days - in its crackdown on incidents of mortgage fraud. One law enforcement official put the losses to homeowners and other borrowers who were victims in the schemes at over $1 billion.

In a separate complaint also filed Thursday, the Securities and Exchange Commission alleges that in the first five months of 2007, Tannin and Cioffi "deceived their own investors, as well as the fund's institutional counterparts, by fraudulently concealing from them the full extent of the fund's deepening troubles."

The complaint says that in March 2007, Cioffi withdrew $2 million of his own money from a hedge fund without revealing it to other investors.

"Cioffi's clandestine redemption caused the Enhanced Leverage Fund to pay out $2 million at a time when the markets were weak and the fund was facing another month of losses, as well as escalating margin calls and forced sales," the SEC said.

"Although Cioffi had lost faith in the funds, as evidenced by his own redemption from the Enhanced Leverage Fund, he nonetheless falsely expressed his supposed confidence in the funds, encouraging investors to add money to the funds and attempting to dissuade them from redeeming," the complaint said.

The complaint alleges Cioffi and Tannin revealed their secret doubts about the survival of the funds in internal e-mails.

Tannin, the complaint says, sent one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, "Is Ralph doing what he should be doing right now?"

Around the same time, it adds, Cioffi wrote to a team economist, saying, "I'm fearful of these markets. ... As we discussed it may not be a meltdown for the general economy but in our world it will be. Wall Street will be hammered with lawsuits."

The complaint alleges violation of security laws and seeks an unspecified fine.

A law enforcement official told The Associated Press on Wednesday that an indictment naming the men was the result of a yearlong federal securities fraud investigation.

The former executives are suspected of misleading investors about the risky subprime mortgage market, the official said, speaking on condition of anonymity because the outcome of the investigation is pending.

Tannin "is innocent," said his attorney, Susan Brune. "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."

Cioffi's attorney declined comment on Thursday.

The fallout from defaults on U.S. mortgages has rattled the global economy and the American housing market.

Subprime mortgages, those issued to people with shaky credit, were repackaged as securities and sold across the globe.

The implosion of the hedge funds foreshadowed Bear Stearns' own demise, with the Federal Reserve having to intervene earlier this year to bail out the beleaguered bank. Their collapse revealed how much damage had been done to the companies that bought, repackaged and sold the loans.

Despite positive assessments by Cioffi and Tannin, the Bear Stearns hedge funds failed in June 2007. The funds had more than $20 billion in assets before crashing.

Cioffi, 52, and Tannin, 46, already have been named in lawsuits brought last year by hedge fund investors, including Barclays Bank PLC, who allege they were purposely misled.

Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values.

The bank alleged Bear Stearns managers "hatched a plan to make more money for themselves and further to use the Enhanced Fund as a repository for risky, poor-quality investments."

The complaint said Bear Stearns told Barclays that the enhanced fund was up almost 6 percent through June 2007 - when "in reality, the portfolio's asset values were plummeting."

Last month, Bear Stearns shareholders approved JPMorgan Chase & Co.'s $2.2 billion buyout at about $10 a share. Back in January 2007, before mortgage defaults began clobbering banks and draining demand from the debt markets, Bear Stearns had traded at $171 a share.

[Gary Kempf]

Tannin''s attorney has declined to comment and Cioffi''s attorney has not responded to a phone message.

What do you expect them to do? They are not going to admit their clients are scum, lying, greedy opportunist.

[antoniof123]

JPMorgan Chase & Co kept 30 of the scum executives and we the stock holders have to pick up the tab.

[faith_in_w]

These people should be let go. Afterall they are rich and rich people shouldnt go to jail. These tax dollars would be better spent on armor for the troops.

[pensacola88]

The Sub-Prime mortgage scandal will go down in history as another event that sent an entire industry into crisis and traced it''s roots to greed.


Since the 1970''s when our country entered the deregulation era, everyone hunting for profit searches for losers with predatory intent and the grandest scale possible.

We are entering an era where the middle class has begun to exit their participation in markets and resist investing with a greater stubborness than seen with the post-depression bank depositors, who were embittered with uncompensated losses.

[faith_in_w]

Pensacola88, it wasnt Hoovers fault, those post-depression bank depositors had it coming to them because they saved at the wrong bank.

[ab2416]

It is past time for CEO''s and Managers who use unscrupulous means to cheat everyone pay the price. As example, the U.S. Citizen is tired of situations like the fellow who left GE to become CEO of Home Depot only to lay off thousands, destroy the company, and leave with millions. As too, the CEO of Country Wide Mortgage promoted very unscrupulous means via his agents to collect large profits. He too should be thrown in jail for the masses are not going to continue to remain silent in this country.

[midland666]

they sound je.wish.....

[smithtyler2]

faith_in_w

What are you smoking this morning? What a moronic statement ''rich people shouldn''t go to jail''?? Osama Bin Laden is very wealthy - are you saying he shouldn''t be imprisoned for the rest of his miserable life? Your daily comments are ridiculous - just keep them to yourself from now on. Contributing, intelligent comments are welcomed - not kindergarten remarks like yours.

[faith_in_w]

smithtyler2, you dont want the troops to have armor? Sad.

[whitemale08]

Agghh...Bush will pardon these clowns because when he came to Washington he led the way to deregulate Wall Street after Jimmy Carter put regulations to safeguard our economy in the late 70''s and early 80''s.

Jimmy Carter was a success while George Bush has been a failure.

[smithtyler2]

faith_in_w

You pitiful excuse of an adult - go back into the classroom and say your abc''s; oh if that''s too difficult, just do everyone a favor and say nothing.

[venkata4--2008]

Two managers are implicated, strange. They should get multi million dollar severance package the way Republicans do business.

BTW can any body pin point people behind the crude oil features speculation too ? OR no not on our Prez. dead body.

[faith_in_w]

smithtyler2, typical liberal always trying to silence the opposition. Atleast I support our troops and want to get them armor while you would rather engage in obvious class warfare by prosecuting these innocent rich people. I dont think I am the immature one here.

[edward1975-2009]

Bankers making horrible decisions and now the Feds are going to pin it on just two people, who are they kidding.

[aerodog]

faith_in_W:

LMAO!! Love this war between posters. Such amusement in the morning with my coffee. By the way, I agree with smithtyler2. I also support our troops and what they''re trying to do over in Iraq. You are a joke and thanks for the humor.

[credibility2]

This after-the-fact routine is laughable. Even with stiff fines and imprisonment, the damage has already been done and can never be reversed. No amount of fines or length of imprisonment would ever be justice for those directed and indirectly impacted by their actions, which is essentially all of us.

[jumkey]

Every story brings more modest proposals from faith_in_w. Do you play soccer as well?

[bobnjersey]

[I dont think I am the immature one here.]
[Posted by faith_in_w at 09:54 AM : Jun 19, 2008]

it doesn''t appear as though you do much ''thinking'' at all.

[oneworldusa]

They are going DOWN, the way of Wachovia''s fluff and WaMu''s fluff, etc. etc. etc.....FINALLY!!!!

While ''after the fact'' is late, I agree, the key here is these uber-white-collar criminals are being held accountable finally for stuffing their own pockets while employees suffer substandard wages and layoffs at their own expense.

Let this be a message that we will not tolerate these higher ups who think they are better than everyone else at the expense of the American worker....This is the start of something BIG, and hopefully the ball will continue rolling.

[faith_in_w]

jumkey, not anymore.

[navyjimfl]

rather its just a large legal bill or embarrasment at least 2 of the wall street crooks are getting some measure of justice

[bogusbones]

as if making $millions a year isn''t enough. i say take their money, cars, houses and boats away and don''t allow them to be involved in the financial industry ever again. it''s the people who have be hoodwinked that should be allowed to get some retribution. ken lay rides again.

[oneworldusa]

Posted by anon00 at 11:04 AM : Jun 19, 2008

---''GOING DOWN'' meaning they are jobless, and probably will be prosecuted, at least banned from the business. The article does reference them as ''former executives.''

And yes, it would be nice to see settlements that tend to be fees to the government paid in addition to, or instead, to customers who''ve been mistreated, and not to the tune of $5 after all the class action lawyers have taken their unfair share, but full replacement value. This might teach some of the other fat, white-collar criminals out there something.

[shanev137]

Cool. I''m glad people are going to jail because of it.

[Latrocinor]

But I thought President Bush doesn''t prosecute these kinds of people?

[cbsblogger]

But I thought President Bush doesn''''t prosecute these kinds of people?


--------------------------------------------------------------------------------

Posted by bhoogren at 11:59 AM : Jun 19, 2008


They won''t .... they are members of Bush''s "Have More Club". This is all for show. Taxpayers paid billions to bail out Bear Stearns courtesy of Bernanke. Bear Stearns should have been allowed to collapse to zero along with all the other financiers that put the country into the mess.

[nelson5714]

They won''''t .... they are members of Bush''''s "Have More Club". This is all for show. Taxpayers paid billions to bail out Bear Stearns courtesy of Bernanke. Bear Stearns should have been allowed to collapse to zero along with all the other financiers that put the country into the mess.

Posted by cbsblogger at 12:04 PM : Jun 19, 2008"

Absolutely correct

[faith_in_w]

bhoogren, dont worry he wont. If you are christian and white and vote republican you are considered a good person in this country.

[Latrocinor]

bhoogren, dont worry he wont. If you are christian and white and vote republican you are considered a good person in this country.

Posted by faith_in_W
.. .. ..

Is that like the definition of "buddy" when you scuba dive?

A buddy is the person you stab when you see a shark. Is that right?

[msay3]

I have been saying it for some time now...Morgan Stanley is in it up to their eyebrows.....They buy into oil commodities, save it and sell later, making a killing....You and I are paying for that through higher energy prices, food, and other goods.....We used to have our stock accounts with them, but found that they were recommending stocks that would make them money (through commissions), but not necessarily good for our long term interests....We gave Morgan Stanley the boot!!!

[pugster]

The sad thing is that these people will probably get less than 10 years for doing billions of dollars worth of damage to many homeowners.

[l8c6]

Our prisons are full of gang banga low functioning sociopaths, it''s time higher functioning sociopaths due their time.

[Latrocinor]

We should outlaw banks since they are so useless and always predatory.

OUTLAW BANKS!

[l8c6]

The sad thing is that these people will probably get less than 10 years for doing billions of dollars worth of damage to many homeowners.

Posted by pug_ster


Exactly, the "justice" system doesn''t look at criminal acts objectively otherwise many of the "justices" would be at risk of being locked up for life. So, they protect their kind, those who are of affluence, well educated and monied.

Poor people guilty of less damage to society due life sentences while these kind get a little slap on the wrist.

Scalia may take holy communion into his mouth from one of the "men of God" but neither kind will escape the ultimate true justice.

[l8c6]

We should outlaw banks since they are so useless and always predatory.

OUTLAW BANKS!

Posted by bhoogren

We need to restore our government to one being of broader representation, accountable to ideally all americans.

[l8c6]

''''The dominance of Goldman and Morgan Stanley in commodity trading comes as a 60 percent increase in food prices over the past 18 months has sparked riots in 30 countries and as record oil prices have led to hearings in Congress on energy markets.--Posted by t_barr

It''s time the american people have their turn at saying NEVER AGAIN.

[Latrocinor]

We need to restore our government to one being of broader representation, accountable to ideally all americans.

Posted by l8c6
.. .. ..

Never has been, never will be. Things aren''t like they used to be and they never were.

[feelfree4u]

Re: "Meanwhile, The FBI said it has arrested about 300 real estate brokers since March - including dozens over the last two days - in its crackdown on incidents of mortgage fraud. One law enforcement official put the losses to homeowners and other borrowers who were victims in the schemes at over $1 billion."

Did these people all act alone, or is this some kind of conspiracy theory?

[mcv57]

Never has been, never will be. Things aren''''t like they used to be and they never were.

Posted by bhoogren

Since the days when God attempted to warn the Israelites, through the prophet Daniel, that a King of the flesh will only bring corruption and perversion. But, the people wanted a King to set their eyes one and touch. God gave David, who basically murdered, deceived, and perverted the law - adultery and poligamy.

[Latrocinor]

Since the days when God attempted to warn the Israelites, through the prophet Daniel, that a King of the flesh will only bring corruption and perversion. But, the people wanted a King to set their eyes one and touch. God gave David, who basically murdered, deceived, and perverted the law - adultery and poligamy.

Posted by mcv57
.. .. ..
Amein

[AlwaysSmiling]

Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth "far less" than their stated values.

The bank alleged Bear Stearns managers "hatched a plan to make more money for themselves and further to use the Enhanced Fund as a repository for risky, poor-quality investments."

The complaint said Bear Stearns told Barclays that the enhanced fund was up almost 6 percent through June 2007 - when "in reality, the portfolio''s asset values were plummeting."
==============================

Why wasn''t Barclay''s tracking the investments themselves and 1) bailing out in June 2007 when Bear Stearns was lying, and 2) informing the SEC and Public that Bear Stearns was lying about the funds?

They''re just as guilty of destroying the economy as BS is.

[sparks224]

I''m just glad we got rid of all those pesky banking regulations that we clearly didn''t need anymore.

[rushlimpdrug]

The most stupid of all posts:


These people should be let go.
Afterall they are rich and rich people shouldnt go to jail.
These tax dollars would be better spent on armor for the troops.
Posted by faith_in_W at 08:58 AM : Jun 19, 2008

[edgardebbins]

I''m thinking that this means these two fellas probably won''t be able to enjoy the condos they bought in the Virgin Islands. Their future housing accommodations are probably going to be cramped and unsophisticated.