On Tuesday, former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin will appear in a Brooklyn court on charges they misled investors about the financial prospects of two investment vehicles they ran.
But as the FT pointed out, there is also a lesson to be learnt about corporate communications:
The trial…will put a spotlight on the way banks and other institutions communicated to investors as the credit crisis got under way.
At the heart of the government’s case appear to be e-mails written by the two men who allegedly promoted their funds publicly while expressing their fears in private. Late last week, US prosecutors released more e-mails they claim bolster their case. “We could blow up,” Mr Tannin wrote in a 2006 e-mail to himself. “Credit is only deteriorating. I was worried that this would all end badly and that I would have to look for work.”
Echoes of Henry Blodget at Merrill Lynch, certainly, but also (and much more recently) of the UBS “crap and vomit” saga and Moody’s “rating cows“.
As the FT reported:
Prosecutors claim that the two men told investors throughout March 2007 that the market presented a buying opportunity. But in a March 2007 e-mail cited in the original indictment, Mr Cioffi wrote: “I’m fearful of these markets . . . It may not be a meltdown for the general economy but in our world it will be.”
In an e-mail in April recommending that the funds be either shut down or the strategies be changed significantly, Mr Tannin wrote: “The subprime market looks pretty damn ugly . . . If AAA bonds are systematically downgraded then there is simply no way for us to make money – ever.” Prosecutors claim that three days later Mr Tannin told investors that he was “very comfortable with exactly where we are” and “there’s no basis for thinking this is one big disaster”.
According to Reuters, Cioffi and Tannin will have to fight jurors’ pre-conception of Wall Street types:
“Unfortunately, the defendants wear the scarlet ‘IB’ (for) investment banker across their chests and this is a problem for them,” said James Cox, professor of law at Duke University in Durham, North Carolina. “Juries have not been very friendly to executives who are seen as poster children for an ongoing financial climate.”
That electronic archive of their every infelicitous comment won’t much impress the puritans, either.
Related links:
Martin.Lukes@a-bglobal.com – FT
Re: email stress tests – FT Alphaville
The Enron corporate email archive – Enron Explorer
The Blodget/Merrill Lynch email trail overview – PBS