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Prosecution begins Opening Statements in Case Against Former Bear Sterns Hedge Fund Managers

Opening statements by the prosecution began today in the trial of one time Bear Stern employees Ralph Cioffi and Matthew Tannin. The former hedge fund managers are the first to be tried in connection with a federal probe into the subprime market collapse.

The men are charged with misleading clients who invested into two separate hedge funds that collapsed. The collapse resulted in losses amounting to somewhere in the area of $1.4 billion. The charges against Cioffi and Tannin include conspiracy, securities fraud, and wire fraud. If convicted, the men face up to 20 years in prison.

Cioffi, the individual who managed the two defunct hedge funds, and Tannin, his chief operating officer, followed an investment policy heavily reliant on the performance of subprime mortgage and related securities. In July 2007, when collateralized debt obligations tanked in response to market conditions, this strategy proved deadly for those invested in these funds.

As investors became anxious, Cioffi and Tannin allegedly lied to investors, stating that they were still putting their personal money into the funds. Cioffi, however, had in actuality withdrawn $2 million of his own money. Prosecutors allege that he did this via the use of nonpublic information, making his actions tantamount to insider trading.

The hedge funds, which filed for bankruptcy in July 2007, were the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd. and the Bear Stearns High- Grade Structured Credit Strategies Master Fund Ltd.