E-Mail Records Play Vital Role in Bear Stearns Case

Email records are critical in a criminal case regarding two former Bear Stearns hedge fund managers. Ralph Cioffi and Matthew Tannin were indicted by a federal grand jury on charges they intentionally misled investors in two funds that collapsed under the weight of wrong-way bets on mortgage-backed securities. The duo faces charges of conspiracy, securities fraud and wire fraud. Cioffi faces an additional charge of insider trading.

The case centers on several email messages alleging the pair had private doubts of the funds even as they were publicly expressing confidence.

For example, in an April 2007 message to Cioffi, Tannin wrote that the market for subprime-related securities - bonds the funds had made big leveraged bets on - "looks pretty damn ugly. ... If we believe [our internal modeling] is ANYWHERE CLOSE to accurate I think we should close the funds now."

Tannin went on to write that if the firm's modeling was accurate, "then the entire subprime market is toast." If highly-rated securities were downgraded, he added, "there is simply no way for us to make money - ever."

Yet at the same time, prosecutors allege, "the defendants led investors and creditors to believe that, despite the challenges presented in the market, the funds would continue to generate an increasing net asset value."

Read more at the CNN website.