Bear Stearns Hedge Fund Managers Arrested for Fraud

Two former Bear Stearns hedge fund managers were arrested Thursday and indicted on conspiracy and fraud counts.

Ralph Cioffi and Matthew Tannin were accused of encouraging investors to stay in their hedge fund, heavily invested in subprime mortgages, though they knew the credit market was in serious trouble, the Associated Press reports. “This is not about mismanagement of a hedge fund,” Mark Mershon, head of the New York FBI office, told reporters. “It is about premeditated lies to investors and lenders.”

According to the AP, the Bear Stearns case against Cioffi and Tannin appears to be based heavily on a series of e-mails, in one of which Tannin said, “I think we should close the funds now,” and “the entire subprime market is toast.” Prosecutors say Cioffi pulled $2 million of his own cash from the fund, while the pair still told investors to stay in and that the outlook was good, and Tannin encouraged an investor to add money to the fund saying he would do the same, but never did.

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Both men pled not guilty at an afternoon arraignment and were released on bond, the news report said. They face up to 20 years in prison if convicted.

The U.S. Justice Department has announced the indictments of more than 400 people in the real-estate industry since March in a crackdown on mortgage fraud, 60 of whom were arrested on Wednesday. The alleged fraud charges include misstatement of income or assets, forged documents, inflated appraisals, and misrepresentation of a buyer’s intent to occupy a property as a primary residence.