Federal prosecutors are investing whether Ralph Cioffi and Matthew Tannin misled not only investors but also their lenders and counterparties.
BusinessWeek reports that Ben Campbell's office, the Brooklyn-based Eastern District, is considering further charges against the two former Bear Stearns hedge fund managers, who currently face both criminal and civil charges.
The SEC has already charged Cioffi and Tannin with making misleading statements to "certain institutional counterparties" who remain unnamed. At least one of them is Barclays, which claims Cioffi lied about the fund's performance in a "series of misrepresentations" in a suit filed in December.
Among the alleged dupes are also Bank of America, Dresdner Bank, and Merrill. The charges against Cioffi and Tannin already include lying to a lender, reported to be Dresdner Bank, about the amount of withdrawals from the two funds. Prosecutors are talking with Merrill, according to BusinessWeek's sources, and they are considering criminal charges to accompany the SEC's civil complaint about a $4 billion pool of CDOs that Bank of America guaranteed and market.
The SEC already alleges that Cioffi misled investors about the deal with BoA, which aimed to allow the purchase of CMOs from the two hedge funds. Prosecutors are apparently making a case that BoA itself was misled. In Business Week's read of events, the newer and broader criminal indictment "would prove that even Wall Street sophisticates can get fooled."
Did Bear Stearns Fool the Street, Too? [Business Week]
--Senior legal affairs correspondent Andrew