The trial of two former Bear Stearns hedge fund managers went to a jury on Monday, the first high-profile Wall Street executives criminally charged with fraud over subprime mortgage-backed securities that fueled the market meltdown.
U.S. prosecutors called a score of witnesses and cited hundreds of documentary exhibits for their case in a New York court in which they accused Ralph Cioffi, 53, and Matthew Tannin, 48, of lying to investors over the health of their funds in 2007 at an early point in the financial crisis.
The two men have pleaded not guilty to the charges of securities fraud, wire fraud and conspiracy. Cioffi has also pleaded not guilty to a charge of insider trading.
U.S. District Judge Frederic Block took more than 90 minutes to instruct the 12 jurors on the charges in Brooklyn federal court.
There is a lot here to absorb, I understand that, Block told the jurors, who have heard four weeks of arguments and testimony about the world of hedge funds, leveraging, repo lending and subprime mortgage-backed securities.
Two hedge funds managed by Cioffi and Tannin failed in mid-2007, costing institutional and individual investors up to $1.6 billion. Bear Stearns Cos, once worth $45 billion, collapsed in March 2008 and was sold to JPMorgan Chase & Co
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 verdicts of the jury could have implications for government investigations of possible wrongdoing at other companies in the lead up to the global financial crisis, including bailed-out giant insurer American International Group Inc
In closing summations last week, defense lawyers argued that the government had not proven its case beyond a reasonable doubt or proven a conspiracy [ID:nN06210677]. They said prosecutors selected email evidence out of context and that overall, Cioffi and Tannin were optimistic about the funds but could not predict the future troubles of the subprime market.
A prosecutor told the jury that Cioffi and Tannin told black and white lies to investors in the first half of 2007 while privately expressing their fears in emails of a market calamity.
The two men, who are free on bail, could be sentenced to as much as 20 years in prison if convicted.
As they have done throughout the trial that started on October 13, Cioffi and Tannin sat calmly in the courtroom with their lawyers. Their wives, children and friends have regularly attended court proceedings.
The case is USA v Cioffi & Tannin, U.S. District Court for the Eastern District of New York, No. 08-415.
(Reporting by Grant McCool; Editing by Phil Berlowitz)