Two prospective jurors who wrote comments about wrongdoing and bending the rules on Wall Street were rejected by a U.S. judge on Tuesday for the trial of two former Bear Stearns Cos hedge fund managers on fraud charges.

The jurors were opposed by lawyers for money managers Ralph Cioffi and Matthew Tannin -- the first Wall Streeters to be criminally charged from a listed company bailed out by the government in 2008. The bailout paved the way for JPMorgan Chase & Co to take over Bear Stearns, a company once worth $45 billion.

Cioffi and Tannin are accused in Brooklyn federal court of promoting their hedge funds, crammed with risky subprime mortgage-backed securities, while privately expressing fears in emails of a market calamity.

The funds collapsed in June 2007, losing investors $1.4 billion at an early stage of the financial crisis.

Both men deny charges of securities fraud, wire fraud and conspiracy that could put them in prison for 20 years. Cioffi, 53, has denied an additional charge of insider trading. Both were freed on bail after they were arrested and indicted in June 2008.

Cioffi and Tannin, both wearing dark suits and white shirts, sat with their lawyers at a long table in the courtroom on Tuesday, listening to the judge question potential jurors.

U.S. District Judge Frederic Block asked possible jurors about whether they could consider the case fairly, even if they had lost money in their pension plans in the market meltdown. This is not a revenge opportunity, Block said.

The outcome of the closely-watched case is expected to influence how prosecutors proceed in other Wall Street investigations.

Responding to a questionnaire, one prospective juror wrote people on Wall Street try to get away with wrongdoing and another wrote that big financial firms always try to bend the rules to make as much money as possible.

Block read the comments to prosecutors and lawyers before calling other potential jurors into the courtroom for questioning.


Block asked jurors about their families, which newspapers and magazines they read, their interests and hobbies, and whether they had lost money in the economic downturn. I've got to make sure you won't hold this against the defendants, the judge said.

If the selection of 12 jurors and six alternates is completed on Tuesday, prosecutors and defense lawyers will make their opening arguments on Wednesday in the trial that is expected to last five to six weeks.

Prosecutors contend that in March 2007 -- more than 18 months before the full extent of the financial crisis became clear -- Cioffi and Tannin, 48, promoted the funds to investors while talking among themselves about the bleak prospects.

The spotlight is on Cioffi and Tannin over a key early moment in the liquidity crisis. A year later Bear Stearns collapsed.

Neither man is charged with causing the demise of the company nor the financial crisis, but defense lawyers have been fighting that perception. They are eager to weed out any jurors who may harbor biases against the financial services industry.

The problem is finding a jury who can look at the defendants and sympathize with them, somebody who was wealthy before the crisis and is still wealthy or who hasn't lost their job, said Ernie Badway, a white collar defense attorney not involved in the trial.

Emails written by Cioffi and Tannin from late November 2006 through mid-2007 as the credit crisis loomed, are key to the government case. The defense is expected to argue that other inferences could be drawn from the emails.

In a March 3, 2007, in an email cited in the indictment, Cioffi told Tannin: the worry for me is that sub prime losses will be far worse than any thing people have modeled.

Four days later, in an email to a colleague, Cioffi wrote: I'm fearful of these markets. Matt said it's either a melt down or the greatest buying opportunity ever, I'm leaning more toward the former.

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 Tim Dobbyn)