NEW YORK, June 19, 2008
Bear Stearns Pair Surrenders To Feds
Ex-Hedge Fund Managers Face Criminal Charges Over Misleading Investors On Subprime Market
-
Play CBS Video Video Feds Make Major Fraud Sweep Hundreds of real estate brokers and two former Bear Stearns hedge fund managers were charged with deceiving clients. Bob Orr reports.
-
Matthew Tannin, left, and Ralph Cioffi had previously been named in lawsuits brought last year by hedge fund investors, including Barclays Bank PLC, who allege they were purposely misled. (CBS/ AP)
-
Timeline Bear Stearns Bailout A look at recent events at the 85-year-old investment firm.
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.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
- 1
- 2
- 3
- next
See all 44 CommentsThe 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
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.
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
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.
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?
Posted by l8c6
.. .. ..
Never has been, never will be. Things aren''t like they used to be and they never were.
It''s time the american people have their turn at saying NEVER AGAIN.
OUTLAW BANKS!
Posted by bhoogren
We need to restore our government to one being of broader representation, accountable to ideally all americans.
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.
OUTLAW BANKS!
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?
Posted by cbsblogger at 12:04 PM : Jun 19, 2008"
Absolutely correct
--------------------------------------------------------------------------------
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.
- 1
- 2
- 3
- next
See all 44 Comments