Bear Stearns pair face criminal case

THE first of an expected slew of high-profile court cases arising from the credit crunch begins tomorrow, with two former Bear Stearns employees accused of misleading investors over the health of sub-prime mortgage securities.<br /><br />The case will hinge on whether one of the bank&rsquo;s former hedge fund managers, Matthew Tannin, knew that the sub-prime arena was headed for collapse but continued to sell related products regardless.<br /><br />Tannin, who goes on trial alongside former boss Ralph Cioffi, wrote diaries on his Google e-mail account which prosecutors will say prove that he expected sub-prime to go south.<br /><br />In one entry, Tannin allegedly wrote that the funds he managed &ndash; which contained $1.4bn (&pound;880m) worth of client money &ndash; were facing possible &ldquo;blow up risk&rdquo;.<br /><br />The two funds run by Tannin and Cioffi collapsed in July 2007 as sub-prime mortgage securities imploded, setting off a chain reaction which ended with the bank&rsquo;s collapse and eventual takeover by Wall Street rival JP Morgan Chase.<br /><br />The pair, the first high-profile names to face criminal action in the wake of the financial crisis, stand accused of hiding the deteriorating state of the funds from investors even as they plunged downwards.<br /><br />Prosecutors will refer to e-mails between Cioffi and Tannin in which they referred to the sub-prime market as &ldquo;toast&rdquo;.<br /><br />If they can prove intent to defraud, the case could set a precedent for a wave of similar lawsuits, with the FBI believed to be looking into 40 cases relating to sub-prime mortgages.