Will Prosecutors Get Help From ‘Toast’ E-Mail by Bear Stearns Manager?

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Will Prosecutors Get Help From ‘Toast’ E-Mail by Bear Stearns Manager?

Posted Jun 19, 2008, 07:05 am CST
By Debra Cassens Weiss

Updated: Indictments of two Bear Stearns hedge fund managers were announced today, and an e-mail warning of looming problems may play a role, the Wall Street Journal reports.

Fund manager Matthew Tannin, a law school graduate, and his superior, Ralph Cioffi, were indicted (PDF provided by Wall Street Journal Law Blog) and arrested Thursday. The e-mail, sent from Tannin’s private account to Cioffi, could prove crucial to allegations that the managers’ discussions with investors didn’t reflect private concerns.

Tannin writes in the e-mail that he fears the market for complex bond securities is “toast” and suggests discussing a shutdown of the funds, the story says. Four days after the e-mail was sent, Tannin told investors he was “quite comfortable” with their holdings, and Cioffi used similar language.

The two men have told associates that their discussions, held before the investor meeting, led them to conclude that Tannin was overreacting to recent financial statistics, the story says. Cioffi, it turns out, had taken $2 million of his own money out of one of the funds the month before, but he has told others it was to help boost another fund.

The hedge fund losses nearly caused Bear Stearns’ collapse before the Federal Reserve helped back a buyout by JPMorgan Chase.

Related coverage

ABAJournal.com: "New FBI Targets: Real Estate Brokers"

Law Blog: "Highlights From Bear Indictment: 'The Entire Subprime Market Is Toast "

Updated at 1:57 p.m. to indicate that Tannin and Cioffi were indicted and arrested, and to add links to related coverage.

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