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.
The case will hinge on whether one of the bank’s former hedge fund managers, Matthew Tannin, knew that the sub-prime arena was headed for collapse but continued to sell related products regardless.
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.
In one entry, Tannin allegedly wrote that the funds he managed – which contained $1.4bn (£880m) worth of client money – were facing possible “blow up risk”.
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’s collapse and eventual takeover by Wall Street rival JP Morgan Chase.
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.
Prosecutors will refer to e-mails between Cioffi and Tannin in which they referred to the sub-prime market as “toast”.
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.