The post-Madoff campaign by US regulators and federal prosecutors to portray themselves as tough on (white collar) crime was dealt a blow on Tuesday, when a jury cleared two former Bear Stearns hedge fund managers of all the charges against them.
The charges against Ralph Cioffi and Matthew Tannin — in what was the first and is still the only criminal case against Wall Street executives to stem from the credit crisis — ranged from alleged insider trading to misleading investors about the prospects of the funds the men managed.
The jury acquitted the men after less than a day’s deliberation, and the trial itself barely lasted a month. Jacob Frenkel, an attorney quoted in an FT story summed up the potential effect of acquittal on other, similar cases thus:
“For those awaiting trial or not yet charged, the message is clear — you can defend and defeat Goliath.”
The FT also quoted Benton Campbell, the US attorney in Brooklyn, who put on a brave face, saying:
Of course we are disappointed by the outcome in this case, but the jurors have spoken, and we accept their verdict.
But our favourite take on the trial thus far comes from Bloomberg, which tracked down several of the jurors:
Prosecutors missed the mark so widely in the fraud trial of Bear Stearns Cos. hedge fund managers Ralph Cioffi and Matthew Tannin that a juror said after their acquittal she would invest with them if she had the money.
…
The defendants, according to juror Serphaine Stimpson, were made “scapegoats for Wall Street…Stimpson said she came into the trial thinking both Cioffi and Tannin were guilty of the fraud, insider-trading and conspiracy charges. She said she began to have second thoughts as the testimony progressed and defense lawyers “tore the government witnesses apart.” “We just weren’t 100 percent convinced,” said Stimpson, 27, an office coordinator at Brooklyn College. “As the witnesses began to testify, I had my doubts.”
Key parts of the government’s case relied on e-mails written by the defendants.
The men claimed in e-mails and conversations with investors to be adding their own money to the funds in the months before their collapse, the U.S. alleged. Neither man added any money to the funds, once valued at $20 billion, prosecutors said.
The defense argued Cioffi and Tannin were innocent of any wrongdoing and had remained honestly optimistic about the funds’ health. E-mails which the men sent were more ambiguous than the government alleged, the lawyers for the two men said.
Jenny McCaughey, of Deer Park, on New York’s Long Island, served as the jury forewoman. She said the e-mails presented by the government as evidence cut both ways. “They said one thing and another thing,” McCaughey said. “The government didn’t give us enough evidence to go on.”
Aram Hong, a juror from Woodside, Queens, said the exchanges between Cioffi and Tannin shown to the jury proved to her that the two men were working “24-7″ to save the funds in the months before they collapsed. She noted a defense exhibit that showed the fund managers were working at 4 a.m. “If this was really a fraud case, they wouldn’t have worked that hard,” said Hong, 27, a food and beverage director at the Iroquois Hotel in midtown Manhattan, adding that she would invest with the two men if she had the money. Hong said another e-mail showed the defendants looking at all the components of the market, not just the negative. She said they “took the time to compare and consider all elements.”
FT Alphaville suspects there was much wringing of hands and haranguing of underlings happening at the offices of the US attorneys, the Department of Justice and the Securities and Exchange Commission on Wednesday morning.
On the other hand, those accused of participating in an alleged $20m insider trading ring may be breathing a deep and collective sigh of relief.
Related links:
Insider trading scandal – FT in-depth archive of stories on Galleon
Stanford scandal – FT in-depth archive of stories on Allen Stanford