Monday, 27 February 2017
Last updated 2 days ago
Sep 23 2009 | 12:21pm ET
The fraud trial of two former Bear Stearns hedge fund managers is set to begin in less than a month, but new accusations and counteraccusations continued to fly this week in court.
In their latest missives to the court, prosecutors accused Ralph Cioffi, the manager of the two collapsed Bear hedge funds, of seeking to tamper with evidence and witnesses and demanded a reconsideration of his bail terms. The government also demanded that it be allowed to present evidence that a computer and several notebooks belonging to the funds’ chief operating officer, Matthew Tannin, are missing.
Continuing the war of words with her adversaries, Cioffi’s attorney called the government’s latest moves “absurd.”
The most serious new allegation by the government is that Cioffi went to Florida earlier this month in an effort to get documents sought by prosecutors, a fact which merits “further investigation into whether the defendant may have committed a new federal offense,” Assistant U.S. Attorney James McGovern wrote to U.S. District Judge Frederic Block.
According to prosecutors, Cioffi contacted a Florida bank from which he obtained a loan backed by his investment in his own hedge fund on Sept. 8 seeking original documents related to that loan, even though prosecutors had told the court on Aug. 18 that they were seeking more papers from the bank, Busey Bank. On Sept. 16, Cioffi again called Busey “offering to accompany the bank representative to the bank’s storage facility to look for the documents.” The new day, prosecutors subpoenaed those documents, but the government says Cioffi went to Florida on Sept. 18 and again called the bank.
“I would love to come by and get a fax copy of that document or the document itself,” Cioffi allegedly said on a voice mail left at the bank. He also allegedly told the bank it should send the original documents by Federal Express to his New Jersey home without telling his own lawyers.
“Cioffi was aware at the time that he made the Sept. 18, 2009, calls that the documents he was attempting to retrieve were the subject of a pending government trial subpoena,” McGovern told the judge.
Nonsense, Cioffi’s lawyer, Margaret Keeley, said in a court filing yesterday. She said the government’s accusations about the Florida loan are “false and inflammatory” and should be excluded.
“The government threw out yet another baseless allegation,” she wrote. “It is preposterous for the government to suggest that it was ‘obstruction’ for Mr. Cioffi to seek a copy of bank records that vindicate him.” She said Cioffi did so on the advice of his lawyers, since he was in Florida anyway to visit his ailing father.
What’s more, she said, the defense has new evidence that proves that Cioffi did nothing wrong in using his hedge fund investment as collateral for the Florida loan. According to Keeley, Bear has now produced documents that show Cioffi had permission to do so, while the government alleges he did not.
“The government has its facts wrong,” Keeley wrote. “The actual facts demolish what the government has told this court.”
Despite Keeley’s protests, prosecutors asked for further restrictions on Cioffi’s $4 million bail, including barring him from speaking to potential witnesses and a reconsideration of his travel restrictions. Keeley said her clients “conduct was entirely proper.”
Meanwhile, the battle over the missing evidence continued, as prosecutors asked separately that they be allowed to include evidence of missing office equipment, dating from the time of the alleged fraud, among the evidence they plan to collect. Among the allegedly missing items are notebooks belonging to both Cioffi and Tannin and a laptop computer belonging to Tannin, which went missing a month after Bear warned both men to preserve all documents.
According to prosecutors, Tannin reported the computer missing on July 26, 2007, after seeking $3,364 to reimburse him for it for months.
Jury selection in the trial is set to begin on Oct. 13.
Cioffi and Tannin are accused of misleading investors in the two hedge funds, the Bear Stearns High-Grade Structured Credit fund and more highly-levered sister fund, about the health of the funds just prior to their collapse, which cost investors $1.6 billion. According to prosecutors, Cioffi brazenly ignored and evaded Bear’s compliance requirements; in addition to the fraud charges against both men, Cioffi also faces an insider-trading charge. The failure of the two hedge funds helped precipitate the collapse of Bear Stearns less than a year later, in March 2008.
Should they be convicted, Cioffi faces up to 40 years in prison and Tannin up to 20 years.