Cioffi and Tannin's Indictment Is Good News For Investors

Ralph Cioffi and Mathew Tannin, the former managers of the Bear Stearns' hedge funds that collapsed last year, were indicted Thursday. The SEC filed civil charges  as well. I appeared on CNBC this afternoon to discuss whether the evidence will be enough to show "intent" and whether criminal charges were warranted. The answer is a resounding yes to both questions, especially given Tannin's "smoking gun" email from his personal account to Cioffi's wife's email account where he frets over the funds future performance just days before making upbeat comments to investors. Cioffi's withdrawal of $2 million from the funds before the collapse appears to provide evidence of his "intent".

The criminal and SEC developments could bode well for investors seeking recovery of losses through the arbitration process. Tannin and Cioffi will be called to testify in arbitration hearings before their criminal trials take place and likely will exercise their Fifth Amendment rights against self incrimination. Attorneys can ask the arbitration panel to take what's called an "adverse inference", which means panelists can assume that if the defendants answered the questions, rather than pleading the Fifth, the answers would have adversely affected their interest.

It should be noted that JP Morgan has put aside billions of dollars for litigation costs when it acquired Bear Stearns.

Comments

[kowalski:]

What is the lession here?! Lie, cheat, and steal --- but do not write emails, if you want to get away with it! Reportedly, there are mafia bosses who do not even speak, to avoid being caught on tape. I'd advice investment bankers to live up to the challenge...

2008 Jun 20 09:30 AM