Sub prime crisis: FBI arrests two ex-Bear Stearns hedge fund managers

19 June 2008

The sub-prime mortgage crisis has thrown up its first high-profile arrests as two former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin were taken into custody at their homes this morning over their roles in the collapse of two funds that ignited the financial crisis last year.

Matthew Tannin was taken into custody outside his New Jersey home on Thursday morning and Ralph Cioffi was arrested at his New York City home, the Federal Bureau of Investigation (FBI) said.

The two men were processed at FBI headquarters in Manhattan, and then taken out in handcuffs by six FBI agents to be transported across the East River to Brooklyn federal court for an appearance later today in connection with an indictment. The US attorney's office in Brooklyn said it planned to announce conspiracy and fraud charges later Thursday.

They are accused of committing fraud by falsely telling investors the funds they managed were in good condition. ''The arrests are appropriate given the magnitude and the egregiousness of their alleged misconduct,'' said attorney Steven Caruso, who is representing investors in arbitration claims against the funds. Cioffi and Tannin engaged in a ''gross violation of the public trust.''

Tannin "is innocent," said his attorney, Susan Brune. "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal." Cioffi's attorney declined comment.

The arrests are the first from a federal probe of possible fraud by banks and mortgage firms whose investments in sub-prime loans and securities plunged in value, causing losses that now total $396.6 billion.