Ralph Cioffi and Matthew Tannin - the two former Bear Stearns hedge fund managers - have been arrested by agents from the FBI. Cioffi was the funds’ senior portfolio manager, while Tannin acted as his COO.
The WSJ carried a report on Thursday on the suspected content of the indictment against the both:
The indictments of two former Bear Stearns Cos. hedge-fund managers are expected to cite a personal email sent from one to the other suggesting that the funds were headed for the rocks — four days before they told investors there was little to worry about.
Fund manager Matthew Tannin emailed his more senior colleague Ralph Cioffi that he feared the market for complex bond securities in which they had invested was “toast.” He suggested they discuss the possibility of shutting down the funds, according to the email, which was sent from Mr. Tannin’s private account.
The central allegations against Cioffi and Tannin are that they misled investors. Cioffi withdrew $2m of his own money from the funds well before investors were aware of trouble. Though the most recent indictment has yet to be filed - one lodged by Barclays last year, made clear that Cioffi and co. had told them everything was fine. From Bloomberg:
The suit cites a February e-mail to Barclays in which Tannin allegedly said the fund is “having our best month ever” and that our “hedges are working beautifully.”
By then, the fund was having “severe” liquidity problems, said Barclays, which said it lost “hundreds of millions of dollars,” as a result. Internally, Cioffi and Tannin discussed the “wipe out” of the fund, according to the complaint.
Victors’ justice after the collapse of Bear? Unlikely. The arrests are probably the first in a string of many. The FBI’s investigation is broad and covers the miselling of complex debt securities across Wall Street. For certain there are plenty of bankers out there who knew perfectly well in the June and July of 2007 - if not well before - that what they were selling was junk. Not to mention the rating agencies. Cioffi and Tannin are simply the first because the two Bear funds were the first serious collapses.
Related links
Former Bear Stearns managers arrested - FT.com
