Two former Bear Stearns hedge fund managers face criminal charges while the
justice department announces more than 400 people are charged in a mortgage
abuses probe called "operation malicious mortgage". 

NEW YORK, NEW YORK, UNITED STATES (JUNE 19, 2008) NBC-
 Two former Bear Stearns hedge fund managers were arrested and
indicted on conspiracy and securities fraud charges on Thursday (June 19)
following a federal criminal probe into the collapse of two funds they
oversaw. 
    The disintegration last summer of the two funds helped kick off a
credit crisis that persists today, by stoking widespread fears about
investments linked to risky subprime mortgage loans. 
    Former managers Ralph Cioffi, 52, and Matthew Tannin, 46, surrendered
to officials and were paraded in handcuffs in front of reporters and onlookers
en route to their arraignment later on Thursday. Their attorneys said they
will fight the charges. 
    According to the indictment, the fund managers lied about the funds'
prospects despite concerns over liquidity and the outlook for the market. 
    Cioffi is facing an additional insider trading charge for transferring
a portion of his own investments from one of the funds without telling
investors about the move, prosecutors said. 
    The crumbling of the two funds, the High Grade Structured Credit
Strategies Master Fund and the Enhanced Master Fund, also spurred questions
about the oversight and risk management operations at Bear Stearns, which was
sold in March to JPMorgan Chase & Co in an emergency takeover deal
brokered by the U.S. Federal Reserve.  
    The indictment by a New York federal grand jury quoted Cioffi as
telling Tannin on March 3, 2007, that "the worry for me is that subprime
losses will be far worse than anything people have modeled." Soon after,
he forecast a "meltdown" in the subprime sector and told a colleague
he was "sick to my stomach" over the funds' March performance. 
    Nevertheless, the indictment said, Cioffi and Tannin continued to
promote their funds as a buying opportunity. 
    "We have an awesome opportunity," Cioffi told a Bear Stearns
broker with clients invested in the funds, the indictment said. Tannin gave a
similar message to the same broker and told investors he was going to add
money to his own investments in the funds, it said. 
    But Tannin never did add money and Cioffi transferred $2 million of his
$6 million investment in one of the funds to another Bear Stearns fund with a
higher return and failed to tell investors who asked that he had done so, the
indictment said. 
     In a statement, Cioffi's attorney Edward Little, from law firm Hughes
Hubbard and Reed, said: "The subprime crisis took everyone by surprise,
including the Fed and Treasury, and dozens of the largest financial
institutions have lost over $300 billion to date on the same investments. 
    "Ralph Cioffi's funds lost money in exactly the same way. Because
his funds were the first to lose might make him an easy target but doesn't
mean he did anything wrong." 
    Susan Brune, an attorney at Brune & Richard LLP representing
Tannin, said: "Matt Tannin is innocent. He is being made a scapegoat for
a widespread market crisis. He looks forward to his acquittal." 
     The U.S. Securities and Exchange Commission also filed civil
securities fraud charges against the pair, accusing them of misrepresenting
the funds' investments. 
    The Eastern District of New York and the FBI's New York Field Division
were to announce the filing of conspiracy and wire and securities fraud
charges against the two, who were expected to appear at Brooklyn federal court
later on Thursday. 
    Cioffi met authorities at an agreed location and Tannin surrendered
after waiting for officials outside his residence, according to a person
familiar with the matter. 
    Law officials escorted the two men in handcuffs past media and
photographers as they walked out of the Federal Plaza building in Manhattan,
where the FBI has its local offices.  
   Meantime, more than 400 people have been charged in a nationally
coordinated probe of mortgage fraud that involved an estimated $1 billion in
losses, the U.S. Justice Department said on Thursday.
   The department, disclosing a 3 1/2 month "Operation Malicious
Mortgage," said fraud schemes mostly involved lending fraud, foreclosure
rescue scams and mortgage-related bankruptcy schemes. The 144 cases involved
individual examples of mortgage fraud, but the U.S. Corporate Fraud Task Force
established in 2002 was also responding to issues raised by mortgage fraud in
the corporate sector.
   "Operation Malicious Mortgage and the Bear Stearns case demonstrate
that the Department of Justice is determined to detect and to punish mortgage
fraud and to help restore stability and confidence in our housing and credit
markets," deputy attorney general Mark Filip said.