Bear Bankers on trial for collapse of Subprime Funds
NEW YORK - Two senior former Bear Stearns bankers have been arrested at their homes and have appeared in court, facing charges over the collapse of two of the failed bank's hedge funds. The funds folded with the loss of $6 billion (£3 billion) in July 2007 after their US subprime mortgage exposure became worthless.
Matthew Tannin, the bank's then asset manager, and Ralph Cioffi, who was directly responsible for the funds, are both accused of misleading investors and overstating the value of investments within the funds. They could be the first high-profile bankers prosecuted in relation to the subprime crisis.
Bear Stearns injected $1.6 billion of capital into the High Grade Strategy and Enhanced High Grade funds in June 2007, subsequently abandoning hope for their revival. Both men have reportedly told friends that they failed to realise the true state of the doomed investments within the funds, but were coping with the general downturn in debt markets. Cioffi moved $2 million of his own money out of one of the funds in March 2007.
The investigation is at the centre of a number by US regulator the Securities and Exchange Commission. Department of Justice (DoJ) investigators are reportedly currently gathering information and interviewing key witnesses. When that process is complete, the US Attorney for New York's eastern district, Benton Campbell, will assess whether securities laws have been broken and if so whether to press charges.
The DoJ began investigating the two funds since last summer, studying the facts connected to the closure of the funds, and around then Bear Stearns chairman James Cayne's decision to wind them down.
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