BROOKLYN (CN) – Here is the federal complaint in which the SEC charges two Bear Stearns managers with fraudulently misleading investors about the firm’s two largest hedge funds before the subprime mortgage fiasco caused the investment bank to collapse.
The SEC claims that as the hedge funds were battered financially by increased redemptions and margin calls in early 2007, Ralph Cioffi and Matthew Tannin deceived investors about the funds’ escalating troubles, until they collapsed, costing investors $1.8 billion.
Also on Thursday, the U.S. Attorney’s Office in Brooklyn indicted Cioffi and Tannin on conspiracy and wire fraud charges.
The charges involve the Bear Stearns High-Grade Structured Credit Strategies Fund and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund. Cioffi was senior portfolio manager and Tannin was COO for the funds. The SEC claims they misrepresented the true state of the funds’ finances to keep bringing in new money and to prevent investors and institutions from withdrawing money.
Cioffi, for example, is charged with misrepresenting the funds’ performance in April as essentially flat, by basing this on just a portion of the funds. Actually, one of the funds 5 percent that month and the other one lost 19 percent, the SEC says.
The SEC says the men also misrepresented the funds’ exposure to risky subprime mortgage-backed securities, claiming they accounted for only 6 to 8 percent of each fund’s portfolio, when it actually came to about 60 percent.