Bear Stearns investor-fraud settlement draws criticism

Two former Bear Stearns hedge fund managers have agreed to a $1-million payment over a civil lawsuit brought by the Securities and Exchange Commission, to avoid a second trial over whether they defrauded investors.

The deal with the agency would allow the former Bear Stearns executives, Ralph R Cioffi and Matthew M Tannin, to admit to no wrongdoing. Following the settlement, the SEC has come in for furious criticism in the courts as also in Congress for settling the fraud cases without acceptance or denial of the charges by the accused.

Lawyers for the agency and the two men appeared in Federal District Court in Brooklyn yesterday and disclosed the settlement, with the parties resolving the case on the proverbial courthouse steps.

The settlement would still need to be approved by Frederic Block, the federal judge in Brooklyn presiding over the civil case. During yesterday's hearing, he raised his eyebrows over what seemed to him to be a relatively small sum of money being paid by Cioffi and Tannin to resolve the lawsuit.

''This case is being settled for, relatively speaking, chump change,'' he said at the hearing, adding however, that he ''was inclined to sign off on it.''

Cioffi and Tannin were indicted around four years ago on criminal charges of misleading their clients about the health of their hedge funds, which were largely invested in sub-prime mortgage-backed securities that crashed in value with the housing market collapsed.