Thursday, 31 July 2014
Last updated 59 min ago
Jun 20 2008 | 2:00am ET
The former managers of two collapsed Bear Stearns hedge funds have pleaded not guilty to federal fraud charges as the Securities and Exchange Commission filed charges of its own.
Ralph Cioffi and Matthew Tanin, the former senior portfolio manager and chief operating officer of the Bear Stearns High Grade Structured Credit Fund and its more highly-levered sister offering, appeared in federal court in Brooklyn, N.Y., yesterday afternoon and were released on bail after surrendering their passports.
Cioffi posted $4 million bond backed by his homes in New Jersey and Florida, and Tannin posted $1.5 million bond backed by his Manhattan apartment. Their wives also appeared before the judge to accept the bond conditions.
Cioffi and Tannin were charged with conspiracy and securities fraud for allegedly misleading investors in the two funds, which collapsed last summer, costing investors more than $1.5 billion. Cioffi was also charged with insider trading. If convicted, Tannin faces 20 years in prison, and Cioffi 40 years.
They are scheduled to appear in court again on July 18.
“By March 2007, Cioffi, Tannin and others believed that funds were in grave condition and at risk of collapse,” Benton Campbell, the U.S. attorney in Brooklyn, said. “Cioffi and Tannin agreed to make misrepresentations in the ultimately futile hope that the funds’ bleak prospects would change.”
In addition to misleading investors about the state of the funds, Campbell said they also lied about their own investments in the fund.
“The defendants lied about what investors call ‘skin in the game,’ namely whether they had personally invested their own money in the funds,” he said.
The SEC also picked up on the theme of exaggerating their investments in the fund, alleging that Tannin told investors he was adding to his stake, though he never did, while Cioffi moved one-third of his $6 million investment into another Bear hedge fund.
The SEC complaint, filed yesterday in Brooklyn, also accuse Cioffi and Tannin of “consistently misrepresenting” the funds’ investments. According to the regulator, monthly fund documents indicated that subprime mortgages made up only 6% to 8% of the fund, while Bear employees were told that subprime exposure was about 60%,
“Hedge fund managers remain subject to the same prohibitions against fraud as other market participants,” Linda Chatman Thomsen, director of the SEC’s enforcement division, said. “When they choose to make public statements, they must not speak falsely or omit material information.”
The SEC is seeking a unspecified civil fines and an order to turn over illegal profits.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…