In closing arguments in the trial of the first high-profile Wall Streeters on fraud charges stemming from the financial crisis, a U.S. prosecutor said two hedge fund managers told black and white lies, but a defense lawyer attacked the government for misleading the jury.

U.S. prosecutor Ilene Jaroslaw said on Thursday former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin lied to investors in the early months of 2007 about the health of their funds even though they were seeing some of the worst market conditions ever.

This case is not about hedge fund strategy or what happened in the market in 2007, Jaroslaw told a Brooklyn, New York, federal court jury.

What it is about, is the two defendants lied to their investors. It's not about the future ... but a case of black and white lies, she told the jury, which is expected to begin deliberations on Monday, nearly a month after the trial began on October 13.

Cioffi, 53 and Tannin, 48, have denied charges of securities fraud, wire fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from subprime mortgage-backed securities that fueled the market meltdown.

When Cioffi's main lawyer, Dane Butswinkas, took his turn summarizing the evidence to the jury, he said prosecutors had given jurors a misimpression and misleading sound bites from emails and had implied conspiracy where there was none.

If you look at some of the tactics I just showed you, do they make you pause? Butswinkas asked the jury. If they would, then that's reasonable doubt.

The 12 jurors were selected after answering written and oral questions about whether they could be fair and impartial in an era of lost jobs, government bailouts of banks, controversial executive bonuses and Wall Street in crisis.

Butswinkas also urged the jury to question whether the New York City borough of Brooklyn was the correct place under the law for the government to bring the case because the alleged offenses took place in the borough of Manhattan.

During the trial, prosecutors called about 20 witnesses and presented about 150 documentary exhibits to the jury. Prosecutors said the two funds, the High Grade Fund and the Enhanced Leveraged Fund, had $1.6 billion leveraged to $20 billion of assets, primarily collateralized debt obligations, securities backed by a pool of debt such as mortgages.

The defense called only three witnesses, including Robert Glenn Hubbard, the Dean of the graduate school of business at Columbia University in New York.

On Thursday, Butswinkas cited his testimony that the strategies for the two Bear Stearns funds did not play out because lenders stopped extending credit.

Hubbard told the court on Tuesday that had the funds' hedging strategy worked, they would have returned very large amounts of money to investors, about $700 million to the High Grade Fund, $650 million to the leveraged fund.


The two men could be imprisoned for up to 20 years if convicted by the jury. One of Tannin's lawyers is expected to offer a summation on Friday followed by a government rebuttal.

Prosecutors contend that at least by March 2007 -- more than 18 months before the full extent of the financial crisis became clear -- Cioffi and Tannin promoted to investors two funds crammed with subprime mortgage-backed securities, while privately expressing, in their emails, fears of a market calamity. Investors lost up to $1.6 billion, according to prosecutors.

Two funds managed by Cioffi and Tannin collapsed in June 2007 after years of consistent success. Less than a year later, Bear Stearns Cos was out of business.

Neither man was charged with contributing to the collapse of Bear in March 2008. It was sold to JPMorgan Chase & Co in a government-brokered deal.

Cioffi and Tannin, dressed in dark business suits, sat with their lawyers at a long table in court, listening intently to the closing arguments.

Much of the government's evidence centers on emails written by the two men to each other, colleagues at Bear Stearns Asset Management and investors outside the firm.

The government evidence also focused on at least one conference call with investors about expected redemptions. Prosecutors alleged the managers misled investors about the amount, but defense lawyers have challenged that.

In addition to fraud charges, Cioffi is accused of insider trading for moving $2 million from one fund he managed to another, Cioffi, who worked for Bear Stearns for 25 years, has denied the charge.

The case is USA v Cioffi & Tannin, U.S. District Court for the Eastern District of New York, No. 08-415.

(Editing by Tim Dobbyn and Steve Orlofsky)