New York (HedgeCo.Net) – The two managers behind Bear Stearns’ infamous failed hedge funds have surrendered to face charges, in what will be the first criminal lawsuit stemming from the subprime mortgage fallout.
Ralph Cioffi, 52, and Matthew Tannin, 46, are part of an indictment resulting from a yearlong federal securities fraud investigation, according to a law enforcement official who spoke to The Associated Press.
Although Tannin’s lawyer is quick to pronounce his innocence, the two men are accused of misleading investors about market conditions and the risks associated with the Bear
Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and the High-Grade Structured Credit Strategies Master Fund.
Using heavy leverage, the funds invested in subprime-mortgage backed securities that started to plummet in value amidst the record number of foreclosures. The managers are accused of hiding performance information as the fund started to lose value rapidly, even citing it as “positive” at specific low points.
After a $1.6 billion failed rescue attempt by Bear Stearns, the funds were shut down in June 2007, leaving investors with nothing more than an apology.
This isn’t the first time Cioffi and Tannin have been hit with allegations. After the implosion of the funds, Barclays Bank, backed by other investors sued Bear Stearns, claiming they were misled about the funds as well.
Susan Brune, Tannin’s lawyer states, "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
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