Page last updated at 17:44 GMT, Tuesday, 13 October 2009 18:44 UK

Bear Stearns ex-managers on trial

Ralph Cioffi
Ralph Cioffi founded the two funds that collapsed

Two former managers at investment bank Bear Stearns are appearing in court in New York facing fraud charges.

Ralph Cioffi and Matthew Tannin, who managed two failed hedge funds that collapsed in June 2007, could be jailed for 20 years if convicted.

They deny allegations that they knew of the funds' problems but did not inform investors, who lost $1.4bn (£709m).

They are among the first financial executives to face charges since the global financial crisis began.

The hedge funds bet on the high-risk sub-prime mortgage market in the US before they collapsed.

Their closure was one of the first signs of the problems in the sub-prime market, which triggered a massive loss of confidence in financial markets.

Both men deny charges of fraud and conspiracy, while Mr Cioffi has denied an additional charge of insider trading.

Proceedings in Brooklyn federal court have begun with the selection of the jury getting under way. Opening arguments are expected later in the week.

Sub-prime 'worry'

The BBC's Michelle Fleury in New York says prosecutors intend to use the two men's own words against them, thanks to e-mails obtained by investigators and quoted in the indictment.

Matthew Tannin
Matthew Tannin had said that the funds were in "good shape"

These include an e-mail that Mr Cioffi sent to Mr Tannin in March 2007 in which he states: "The worry for me is that sub-prime losses will be far worse than anything people have modelled."

According to the papers, the two men subsequently told senior Bear Stearns personnel that the funds were "in good shape and would continue to be successful".

Sub-prime mortgages, which are loans issued to people with a poor credit history, were repackaged as securities and sold across the globe.

The collapse of these hedge funds preceded Bear Stearns' own demise in 2008.

It was later bought by JP Morgan, with the backing of the US Federal Reserve.

Bear Stearns was one of the most high-profile victims of the credit crunch, which was triggered by bank losses linked to the US housing market.

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