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| In this combination photo former Bear Stearns Cos. hedge fund managers Ralph Cioffi, left, and Matthew Tannin, are escorted out of 26 Federal Plaza in New York, U.S., in this file photo taken on Thursday, June 19, 2008. | ||
The two men, Ralph Cioffi and Matthew Tannin, were accused of lying to investors -- telling them they were optimistic about their funds, while privately worrying they were all but dead. The funds collapsed in 2007, in a prelude to the mortgage crisis that eventually felled Bear Stearns itself less than a year later and heralded the arrival of a full-blown credit crisis. (Bear Stearns was bought by J.P. Morgan Chase & Co.)
The acquittals are a setback for the U.S. attorney's office in Brooklyn, N.Y., which along with several other offices is investigating Wall Street for possible criminal wrongdoing stemming from the credit crisis, including at Lehman Brothers Holdings Inc. and American International Group Inc. In Tuesday's case, the question boiled down to this: Were the two men misleading investors, or simply putting a positive spin on sagging returns?
Jurors in Brooklyn found there was no evidence beyond a reasonable doubt that the defendants had criminal intent and conspired to mislead their investors. There "was nothing that was clear and convincing," said juror Tabasam Bhatti, a 31-year-old civil servant. The prosecution didn't provide "enough information," he said.
Messrs. Cioffi and Tannin were the first and so far only Wall Street executives to face criminal securities-fraud charges stemming from the crisis, underscoring the difficulty of assigning criminal liability for Wall Street's mistakes.
As financial markets tumbled last year, federal prosecutors began investigating the turmoil surrounding several large companies, including investment bank Lehman Brothers, mortgage giant Fannie Mae and AIG, the big insurer. Probes are focusing on the public comments and internal emails of executives to determine if they intentionally misled shareholders with positive public statements about their troubled companies.
The federal bailout of Wall Street has raised the ire of taxpayers and put pressure on the Justice Department to hold top executives accountable for the crisis.
The difficulty in building such cases, say legal experts, is that the financial crisis was marked by such unprecedented market turmoil. As a result, they say, while certain statements by executives ultimately proved incorrect, they can make a case that they believed what they were saying.
Some lawyers who observed the case have said that the funds' investors could sue the men if they felt misled, but that the criminal case was a stretch.
Andrew Frisch, a former federal prosecutor in Brooklyn, echoing comments made publicly by numerous lawyers since the case was filed last year. The defendants "were not trying to swindle widows out of their future; they were mismanaging the crisis," said Mr. Frisch, a defense attorney who wasn't involved in the case.
After the verdict was read, the defendants' family members and lawyers embraced each other and cried. The verdict, which also cleared Mr. Cioffi of insider trading and both men of conspiracy charges, came after about six hours of deliberation by a mostly working-class jury of eight women and four men.
"I'm happy," Mr. Cioffi said as he exited the courtroom. "We appreciate the attention the jury gave the case," said Mr. Cioffi's lawyer, Dane Butswinkas.
The defendants didn't take the witness stand in their defense. Mr. Cioffi, 53 years old, and Mr. Tannin, 48, faced a maximum of 20 years in prison for each of the five fraud counts and five years on a conspiracy charge, if they had been convicted.
"Of course, we are disappointed by the outcome in this case, but the jurors have spoken, and we accept their verdict," said Benton Campbell, the U.S. attorney in Brooklyn, in a written statement.
The case against Messrs. Cioffi and Tannin "was pushing the envelope," said Throughout the case, the jury was bombarded with mortgage-related lingo -- "collateralized debt obligations," "credit models" and the like -- in an attempt to explain how two Bear Stearns funds run by the defendants imploded. The funds' investors, who were institutional clients and wealthy individuals, lost about $1.5 billion.
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