Ex-Bear Stearns manager did not lie-trial lawyer
Former Bear Stearns hedge fund manager Matthew Tannin, on trial for fraud and lying to investors early in the financial crisis, might have made strategic mistakes but he did not conspire with colleagues to commit a crime, his lawyer said on Thursday.
A New York jury also heard testimony from a wealthy investor who said he would have pulled money from a Bear Stearns Asset Management fund had he known Tannin’s boss and co-defendant, Ralph Cioffi, transferred $2 million of his own money to another fund.
Cioffi, 53, and Tannin, 48, have denied charges of fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to face criminal charges stemming from problems with subprime mortgages and overall market liquidity.
Cioffi is also accused of insider trading over the transfer, a charge his lawyer described as “ridiculous” in his opening statement on Wednesday. He said Cioffi was not required to give notice to investors over decisions about his personal investments in the funds he managed.
“I would have pulled my money out. Why? If he didn’t have faith in what he was doing, why should I?” Howard Brown, chief executive officer of Rentacrate LLC, said under questioning by U.S. prosecutor James McGovern.
Brown, the first witness called by the government, said he lost a little more than $3 million. He first invested with one of Cioffi’s funds in mid-2006. Statements from the fund did not show a negative month until a drop of 6 percent in May 2007, which he told the court was “quite a shocker.”
Cioffi and Tannin managed two hedge funds that collapsed in mid-2007, costing investors — some of them large banks — between $1.4 billion to $1.6 billion. The funds were crammed with collateralized debt obligations (CDOs), securities backed by pools of debt that included subprime mortgage-backed securities.
Neither man is charged with contributing to the demise of Bear Stearns Cos not long after the funds collapsed. The company was sold to JPMorgan Chase & Co in a government-backed deal.
FEARS IN EMAILS
Emails written by Cioffi and Tannin are key to the government’s charges that they intended to deceive investors at an early stage in the subprime market meltdown.
“No one can lie about what the future will bring because nobody knows what the future will bring,” Tannin’s lead lawyer, Susan Brune, told the jury in her opening statement on Thursday in U.S. District Court in Brooklyn.
“He tried to foster debate, think through all the options and he used emails to foster that kind of debate,” Brune said.
Prosecutors contend that by March 2007 — more than 18 months before the full extent of the global financial crisis became clear — the pair promoted the funds to investors while privately emailing their fears about a possible market calamity.
Brune addressed a lengthy April 22, 2007, email by Tannin to Cioffi and another colleague, one paragraph of which was highlighted in the indictment. Tannin presents two extreme positions: either closing the funds or aggressive investment following an internal company report on CDOs.
He wrote that if the report was at all accurate “then the subprime market is toast” and the funds should be closed.