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Future grim for two Bear Stearns hedge fund managers

New York (HedgeCo.Net) – Troubles keep arising for Bear Stearns, even after its demise and the resulting takeover by JPMorgan Chase.  It seems investors are still targeting Bear after the implosion of their two failed hedge funds last year that kicked off the subprime mortgage crisis. 

Federal prosecutors, along with the SEC, may bring criminal charges against Ralph Cioffi and Matthew Tannin, who ran the High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and the High-Grade Structured Credit Strategies Master Fund.

The two funds at one point managed upwards of $20 billion, with a majority of their assets invested in subprime-mortgage backed securities.  As homeowners started defaulted on their mortgages at record rates, these securities plummeted in value, and creditors started to demand more collateral. 

Even an influx of $1.6 billion by Bear Stearns could not save the funds, and assets were subsequently frozen.  Both funds eventually filed for bankruptcy with only a small portion remaining of investor’s money.  

A failed request at a Cayman Islands liquidation sealed the deal for Bear, who no longer could shield the fund’s assets from investors.

The question arises of whether or not Bear Stearns overstated their securities values to shareholders.  At times, the two managers were quoted as reporting the performance of the funds as “positive,” when in reality, it was down as much as 38%.

According to the Wall Street Journal, securities fraud charges may be filed against the two men by next week.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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