Ex-Bear Stearns managers arrested

US authorities are investigating hedge fund activity before the bank collapsed
Two former managers at investment bank Bear Stearns have been arrested in New York over their role in the collapse of the bank's hedge fund last year.

Reports say Ralph Cioffi and Matthew Tannin will face criminal charges for their role in managing hedge funds that collapsed in June 2007.

The bank's hedge funds bet on the high-risk sub-prime mortgage market in the US before it collapsed.

Authorities in Brooklyn are due to give details about the case later.

FBI spokesman Jim Margolis told the BBC the men faced criminal charges of "securities fraud related to their management of two Bear Stearns hedge funds".

The men are due to appear in the US Federal Court in Brooklyn later this afternoon local time.

If charged, the men would become the first Wall Street executives to face criminal charges related to the US sub-prime mortgage crisis.

Sub-prime mortgages, loans issued to people with a poor credit history, were repackaged as securities and sold across the globe.

The collapse of these hedge funds preceded Bear Stearns' own demise earlier this year.

In March, JP Morgan agreed to buy Bear Stearns with backing of the US Federal Reserve. The deal was approved by Bear Stearns shareholders last month.

Bear Stearns was one of the most high-profile victims of the credit crunch, which was triggered by bank losses linked to the US housing market.

The Fed took swift action over the situation at Bear Stearns to prevent problems spreading to the rest of the international financial sector.

Ex-Bear Stearns duo arrested over funds collapse

From Times OnlineJune 19, 2008

Tom Bawden, New York
Ralph Cioffi and Matthew Tannin, two former Bear Stearns employees, were arrested at their homes this morning ahead of being formally charged for misleading investors.

Mr Cioffi and Mr Tannin were taken into custody at their homes in Tenafly, New Jersey and Manhattan, New York, respectively. They are due to appear in a federal court in Brooklyn later today.

The two bankers have been under investigation by the US Government for their roles in the collapse of two hedge funds run by Bear Stearns, which was taken over in a rescue deal by JP Morgan Chase in March.

Steven Caruso, an attorney who is representing investors in arbitration claims against the funds, which melted down last summer under the weight of losses relating to "sub-prime" investments, said: "The arrests are appropriate given the magnitude and the egregiousness of their alleged misconduct."

The two men engaged in a "gross violation of the public trust", Mr Caruso added.

The criminal charges would represent the first time that the US Government has indicted Wall Street executives in relation to the credit crunch.

The case is expected to centre on two allegations: that the men deliberately misled investors about the funds’ health, and whether they intentionally overstated the value of their assets.

The two hedge funds that Mr Cioffi and Mr Tannin ran became the first prominent casualties of the credit crunch when they imploded last summer at a cost to investors of about $1.6 billion (£812 million).

The case against the two is part of a broader government investigation and could lead to further charges being laid against others suspected of misleading investors or contributing to the credit crunch.

Lawyers for the two men declined to comment.