Wall Street on Trial?

October 4, 2009 – In The News
The Record

Ralph Cioffi, who reportedly earned $17.5 million a year as an executive at investment banking giant Bear Stearns and once headed two Bear Stearns hedge funds with more than $1 billion in assets, goes to trial in Brooklyn on Oct. 13, accused of deceiving investors about the funds' dire health shortly before their collapse. Cioffi, who denies the allegations, and his colleague, Matthew Tannin of New York, were indicted in June 2008 and face charges of securities and wire fraud and could be sentenced to up to 20 years in jail if convicted.

The trial's outcome may hinge on how much the Brooklyn jury blames Wall Street for what has happened to the economy. Prosecutors accuse Cioffi and Tannin of lying to investors and even their superiors to stop investors from pulling money out of the two funds, which were largely worthless when Bear Stearns closed them in July 2007, for a loss of $1.4 billion to investors. While some observers cast the funds' collapse as the first in a series of events that led to the demise of Bear Stearns itself — which was sold to JP Morgan in May 2008 — and even the nation's economic woes, Cioffi's attorneys dispute any connection and Tannin's attorney has said he is being made a scapegoat for the financial meltdown.

In strict legal terms, the case will center on a simple issue: whether Cioffi and Tannin knew the disastrous state of the funds but deliberately failed to tell investors, depriving them of key facts on which to decide whether to pull out of their money or hold firm. Yet observers say the jury's view may be colored by the economic meltdown since the indictment, including the collapse of Lehman Brothers, the grave financial problems at numerous banks and the worst recession in decades. And the fact that few other Wall Street executives have faced prosecution, could add to Cioffi's woes.

Ernest Badway said there is clearly "potential for the jury to exact punishment on Mr. Cioffi for everything that has happened to the country."

"I cannot think when there has been a worse time to go to trial for someone like Mr. Cioffi," Badway said.

Read the full article in the October 4 issue.