Last November, Matthew Tannin and Ralph Cioffi’s days were made when, in a in a flash of prosecutorial incompetence, the dream team who ran the two ridiculously named Bear Stearns funds– High Grade Structured Credit Strategies Fund and High Grade Structured Credit Strategies Enhanced Leverage Fund– were acquitted on charges of conspiracy, securities and wire fraud, and dodged 20 years each in the big house. There was no problem whatsoever with the fact that they’d painted a rosy picture to their investors as the bottom fell out of the credit market and they moved their own money out of the time bomb which ultimately cost clients $1.6 billion and, in fact, the jury was so impressed with how the team conducted their business that many indicated 12 ready and willing investors await. Before he was proven innocent, however, Cioffi had to do a little unloading of assets, the most valuable ones being a house in Southampton, one in New Jersey (he and his wife are now in a rental) and his prized Ferraris. Now he tools around in his wife’s Honda and if you thought that’d be a source of depression, you thought wrong. Cioffi says it’s a great little car. Read more »
It seems we will have Ralph Cioffi and Matthew Tannin to kick around for a while longer. The two men may have escaped the long arm of the law, winning an acquittal on fraud and insider-trading charges earlier this week, but the SEC isn’t discouraged.
The regulator will proceed with its own case against the two former Bear Stearns hedge fund managers, SEC Enforcement Chief Robert Khuzami said. And why not? “We filed a case based on the evidence from our own investigation,” Khuzami noted, politely failing to mention the cock-up of an investigation run by the U.S. Attorney’s office. There’s also the “different standard of proof” for a civil trial, under which even the incompetent prosecutors could probably win a conviction. And finally, there are those incompetent prosecutors, lighting the way to failure.
“We will study the transcript and events at trial,” Khuzami said, then mumbling, “and do the exact opposite.”
US SEC expects to proceed with Bear Stearns case [Reuters]
They haven’t said anything yet but I think it’s pretty obvious it’s coming. Yesterday, when the dream team in charge of the two ridiculously named Bear Stearns funds–High Grade Structured Credit Strategies Fund and High Grade Structured Credit Strategies Enhanced Leverage Fund– emerged from a Brooklyn courthouse, Matthew Tannin had the shit-eating grin pictured at left on his face. He was happy, of course, that he and his co-conspirator, Ralph Cioffi had gotten off counts of conspiracy, securities and wire fraud, and dodged 20 years each in the big house. Because honestly, even MT didn’t see that coming (you read the e-mails). But mostly, he was psyched to learn that his career as a money manager is not over. People aren’t planning on holding this (apparently baseless) duping of investors stuff against him and his colleague and in fact? Some are pretty impressed with how the dream team conducted their business.
Aram Hong, a juror from Woodside, Queens, said the exchanges between Cioffi and Tannin shown to the jury proved to her that the two men were working “24-7″ to save the funds in the months before they collapsed. She noted a defense exhibit that showed the fund managers were working at 4 a.m.
“Didn’t [Ralph Cioffi and Matthew Tannin] have a responsibility to stop a panic by saying, ‘Look, we think things are going to be okay here’? Can’t you be scared in an internal email but still feel things are going to be okay and say that to investors?”
At the heart of the indictment of former Bear Stearns hedge fund managers Matthew Tannin and Ralph Cioffi is an email exchange in which Tannin questioned the performance of the funds. Federal prosecutors are treating those those emails as the smoking gun in the case against them, saying the men privately knew the funds were in trouble while they publicly reassured investors that the funds were healthy. At least one former prosecutors has described the email exchange between the two men as “dumbfounding.”
Of course, the exchange could also be read as exculpatory. As far as we can tell, the emails detail a discussion about fund performance and strategy and do not discuss attempts to deceive investors. The junior Tannin was nervous. His boss Cioffi instructs him to hold steady. These are the kind of frank and open discussions investors should hope occurs between those entrusted to manage their money. But this case seems likely to make those discussions too dangerous to hold.
The prosecution of these two Bear Stearns executives offers a bad lesson for Wall Street: If you have doubts about your strategy or returns, never put it in an email.
Oh hell yes, my friends. Oh hell yes. Fuck business cards (unless they belong to egret-lover Sam Israel, whose b-card criminally only sold for $61). A Bear Stearns Christmas card signed by alpha-generator extraordinaire Ralph Cioffi is being auctioned off on eBay. Bidding is up to $26. To put things in perspective, this would set you back 13 shares of BSC, at the time JPM was hilariously going to buy it for $2. Not that we don’t want this thing for ourselves, but we sense some stiff competition in Jamie Dimon, whose feelings for Cioffi, instrumental in removing one of the key Jenga pieces from this bitch, and allowing JPM to buy it on the cheap, run deep. He’ll likely also be playing dirty when it comes to scoring a signed grav-bong being auctioned by a seller who goes by the name of BigJCaCay. (Typically, these “little pieces of history” have been offered up by third parties, but in a sharp departure from his demonstrated business acumen of late, someone who once held a senior position at the firm has been tearfully parting ways with his most precious possessions. For example, a favorite roach clip is predicted to go for at least a few ten-spots, even half of which BJCC is in no position to be turning down.)
Ralph Cioffi Signed Bear Stearns Hedge Fund Xmas Card [eBay]
Last week, former Bear Stearns hedge fund manager Matthew Tannin found himself sitting in a Brooklyn jail cell, charged with defrauding investors in a collapsed hedge fund. The University of San Francisco law school graduate was quickly released on bail, of course. And friends say he’s been pouring his energies into training for a triathlon.
But things are looking up! On Sunday, someone put his Bear Stearns business card up for auction on Ebay. After an initial price of just 99 cents, the card was quickly bid up to twenty dollars. The top bid is now $20.50. Bidding is set to close on Friday. The card lists Tannin’s employer as “Bear Stearns High-Grade Structured Credit Strategies, LP”–the now infamously awkward name of the hedge fund he warned his boss, Ralph Cioffi, would collapse even as they continued to ensure investors of its health. Presumably Tannin’s got loads of these things in his desk drawers, so perhaps by selectively releasing them he can raise money to cover part of his legal expenses.
As you know, Bear Stearns former hedge fund managers Ralph Cioffi and Matthew Tannin were arrested this morning. The dream team was charged with securities fraud for telling clients in the pair of BSC funds created to invest in that can’t miss asset class, subprime mortgages, that nothing was fucked last year when in reality, that wasn’t exactly the case.
According to the indictment, in an email to a member of his team at the end of March 2007, Tannin wrote, “[b]elieve it or not– I’ve been able to convince people to add more money.” Clearly, Tannin was shocked by this turn of events, as he well should have been. But what’s shocking is not the fact that people didn’t necessarily understand that subprime was toxic sludge, but that they didn’t see Bear’s “we’re trying too hard” oversell of this stuff and go, “Whoa, wait just one minute.” I’m not intimately familiar with the jargon used in formal pitches to investors but “we have some awesome opportunities,” which is what indictment records state Cioffi instructed brokers to tell clients, strikes me as something that would be a tip-off run for your lives. Seriously, they might as well have gone with, “this shit kicks ass” or “you bitches will thank me in the morning” or “all other funds suck balls in comparison to ours.” On a related noted, if forthcoming testimony doesn’t reveal they did, I plan using those pitches verbatim when I open my own place in 5-10.
Ex-Bear Stearns managers charged with fraud [Reuters]
Behind The Scenes Of Bear’s Fund Meltdown [DealBook]
Federal prosecutors are preparing to file criminal charges against managers of two Bear Stearns hedge funds that collapsed at the dawn of the credit crisis last year. Although it’s being described as the conclusion of a year long investigation, it seems very likely that Ralph Cioffi and Matthew Tannin there wouldn’t be facing criminal charges if Bear Stearns hadn’t collapsed.
“Of course what’s really happening here is that the hedge fund managers are taking the fall for the collapse of Bear, and the even broader reverberations from that, including the controversial merger, the bailout and the credit markets’ woe,” law professor Larry Ribstein writes. “As with Enron, the public is screaming for action. When in doubt, throw somebody in jail. The public will eventually calm down, by which time the now impoverished defendants will be in jail or being exonerated on appeal.”
We wonder if the urge to prosecute doesn’t arise from an unrealistic confidence in markets. Regulators and prosecutors believe that preserving investor confidence is their mandate. Massive losses due to innocent if colossal errors about market directions undermine market confidence but there’s little a government official can do about that. If your goal is restoring investor confidence, you’re extra-motivated to find criminal wrong-doing and fraud because you can reassure investors that their losses are do to bad apples rather than risk inherent in the markets.
The Enronization of Bear [Ideoblog]