Bear Stearns Cos. hedge fund managers Ralph Cioffi and Matthew Tannin are headed to the courtroom Tuesday. A jury will finally decide if the two hedge fund managers are scapegoats or criminals, and the trial could set a precedent for how the government will pursue other legal proceedings involving Wall Street executives.
The trial, being held in Brooklyn, N.Y., will investigate whether the two men really misled investors about the health of two hedge funds, Bear Stearns High Grade Structured Credit Strategies Master Fund and
the High Grade Structured Credit Strategies Enhanced Master Fund, which
filed for bankruptcy in July 2007. It's been debated as to whether the collapse of the $1.4 billion funds brought on the the subprime mortgage meltdown, according to
Bloomberg.
The prosecution will apparently rely heavily on e-mails the two wrote to each other and were obtained from Google Inc. (NASDAQ:GOOG) last week. According to
Reuters, in e-mails written around March 3, 2007, Cioffi told Tannin:
"the worry for me is that sub prime losses will be far worse than any thing people have modeled." Four days later, in an email to a colleague, Cioffi wrote: "I'm fearful of these markets. Matt said it's either a melt down or the greatest buying opportunity ever, I'm leaning more toward the former."
The two are facing pretty hefty charges including conspiracy, securities fraud and wire fraud, and they could get 20 years in prison if they are convicted.
As Crain's points out in an interview with Fried Fank Harris Shriver & Jacobson's William Johnson, Cioffi and Tannin were the
first bankers indicted for crimes that apparently lead to the financial meltdown, and they would likely set the course for cases against other executives at Bear Stearns such as Alan Schwartz, Jimmy Cayne, Warren Spector, as well as executives at Lehman Brothers Holdings Inc., American International Group Inc. (NYSE:AIG) and many other institutions.
J.P. Morgan Chase & Co. (NYSEJPM) will be footing the bill for all litigation against Cioffi and Tannin and as part of the merger agreement with Bear Stearns, according to Fortune. - Maria Woehr
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