Two ex-Bear Stearns hedge-fund managers acquitted on all counts of lying to investors

Two Bear Stearns executives who ran hedge funds that crashed in 2007 amid the subprime mortgage meltdown were acquitted Tuesday of lying to investors about the looming crisis on Wall Street.
APR 05, 2010
By  Bloomberg
Two Bear Stearns executives who ran hedge funds that crashed in 2007 amid the subprime mortgage meltdown were acquitted Tuesday of lying to investors about the looming crisis on Wall Street. Jurors found Ralph Cioffi and Matthew Tannin not guilty of conspiracy and other charges in an alleged fraud that cost 300 investors about $1.6 billion and nearly caused the demise of Bear Stearns itself. The firm barely avoided bankruptcy in a rescue buyout by JPMorgan Chase & Co. The jury began deliberating on Monday. Both men had been charged with three counts of securities fraud and two counts of wire fraud. Cioffi was also charged with insider trading. Tannin left the courtroom without comment. Cioffi said only, "I'm happy." During a monthlong trial in federal court in Brooklyn, prosecutors relied on a series of e-mails they alleged revealed behind-the-scenes alarm at the hedge funds as investments in complex, high-risk securities tied to the subprime market began to slide. "The subprime market looks pretty damn ugly," Tannin wrote to Cioffi in April 2007. If Bear's internal reports were accurate, Tannin suggested, "I think we should close the funds now," and "the entire subprime market is toast." The situation became so dire that Cioffi pulled $2 million of his own cash from the fund, but the pair still told investors that they should stay in and that the outlook was good, prosecutors said. He also was accused of hiding news that one worried investor had decided to pull out $57 million from the funds. Based on a credit analysis, "there's no basis for thinking this is one big disaster," Cioffi told investors in a recorded conference call with investors that was played for jurors. The defendants "lied to their investors. They defrauded their investors. The misled their investors," prosecutor James McGovern said in his closing argument. "And it's time for them to be held accountable." Defense attorneys sought to convince the jury that the e-mails were taken out of context. Cioffi and Tannin, they said, had no motive to steer investors off a cliff, and were honest with them about the volatility of the market. Prosecutors failed to show that the managers "knew what the future held and they hatched a criminal scheme to lie to investors," Cioffi's attorney, Susan Brune, said in closing arguments. Added Brune: "This is a case that is built on hindsight bias."

Latest News

In an AI world, investors still look for the human touch
In an AI world, investors still look for the human touch

AI is no replacement for trusted financial advisors, but it can meaningfully enhance their capabilities as well as the systems they rely on.

This viral motivational speaker can also be your Prudential financial advisor
This viral motivational speaker can also be your Prudential financial advisor

Prudential's Jordan Toma is no "Finfluencer," but he is a registered financial advisor with four million social media followers and a message of overcoming personal struggles that's reached kids in 150 school across the US.

Fintech bytes: GReminders and Advisor CRM announce AI-related updates
Fintech bytes: GReminders and Advisor CRM announce AI-related updates

GReminders is deepening its integration partnership with a national wealth firm, while Advisor CRM touts a free new meeting tool for RIAs.

SEC charges barred ex-Merrill broker behind Bain Capital private equity fraud
SEC charges barred ex-Merrill broker behind Bain Capital private equity fraud

The Texas-based former advisor reportedly bilked clients out of millions of dollars, keeping them in the dark with doctored statements and a fake email domain.

Trump's tax bill passes senate in hard-fought victory for Republicans
Trump's tax bill passes senate in hard-fought victory for Republicans

The $3.3 trillion tax and spending cut package narrowly got through the upper house, with JD Vance casting the deciding vote to overrule three GOP holdouts.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.