Prosecutors Say Former Bear Stearns Manager Tried To Influence Witnesses
The web of lies continues to grow for former Bear Stearns executives Ralph Cioffi and Matthew Tannin. At a recent court hearing in Brooklyn, New York, prosecutors claim that one of the two disgraced hedge fund managers tried to influence potential witnesses last summer during an internal investigation of the Wall Street institution. Prosecutors would not say which of the two men attempted to interfere with witness statements.
The collapse of 85-year-old Bear Stearns in March 2008 has been referred to as the trigger that propelled the nation’s credit crunch and ignited the onset of what continues to be a financial mess for banks and investment firms whose losses on investments in subprime mortgage-related securities now total $500 billion and counting.
Cioffi and Tannin were at the center of Bear Stearns’ downfall when the hedge funds they managed collapsed in June 2007, leaving investors with $1.4 billion in losses. Prior to shutting down the funds, both men continued to extol their solid financial state to investors, while privately stating the funds’ collapse was imminent. On June 19, 2008, Cioffi, 52, and Tannin, 46, were both arrested by the Federal Bureau of Investigations (FBI) and charged with conspiracy, securities fraud, insider trading and wire fraud. If convicted, the two men could be sentenced for up to 20 years or more in prison.
By the time Bear Stearns assets were taken over by JP Morgan Chase in March 2008, the company had lost more than 90% of its market value.
Conflicts of Interest
Meanwhile, H. David Kotz, the inspector general of the Securities and Exchange Commission (SEC), is blasting the Miami office of the SEC for its role in dropping a three-year-old investigation into whether Bear Stearns improperly valued some $60 million worth of collateralized bond obligations sold to W. Holding Co.’s Puerto Rico bank unit.
After months of legal wrangling, Bear Stearns agreed to pay $500,000 to settle the matter. Before that could happen, however, the SEC suddenly abandoned the case.
According to testimony given by Michael Trager, the lawyer representing Bear Stearns, the head of the SEC’s Miami office, David Nelson, told Trager in a telephone call that “Christmas is coming early this year,” and that “Bear Stearns can keep their money.”
Underlying the events is the fact that Trager, the Bear Stearns lawyer, once worked at the SEC with Nelson in the 1980s.
Kotz is now calling for disciplinary actions against Nelson for his decision to close the investigation.
The SEC’s report, “Failure to Vigorously Enforce Action Against W. Holding and Bear Stearns at the Miami Regional Office,” was issued on Sept. 30, 2008. It has yet to be posted on the SEC’s Web site. A copy can, however, be viewed at the Miami Herald: http://media.miamiherald.com/smedia/2008/10/14/20/Report_of_Investigation.source.prod_affiliate.56.pdf.
Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
