Ex-Bear Hedge Fund Managers Plead Not Guilty To Fraud Charges

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.


Ex-Bear Hedge Fund Managers Arrested, Charged

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...