Page last updated at 22:30 GMT, Tuesday, 10 November 2009

Bear Stearns ex-managers cleared

Matthew Tannin (l) and Ralph Cioffi
A jury took about seven hours to clear Matthew Tannin (l) and Ralph Cioffi

Two former Bear Stearns hedge fund managers charged with fraud have been found not guilty by a New York jury.

Ralph Cioffi and Matthew Tannin were cleared of charges including securities fraud and conspiracy charges relating to the collapse of two hedge funds.

Prosecutors had argued the two managers lied to clients to protect bonuses when their funds were losing money.

The hedge funds bet on the high-risk sub-prime mortgage market in the US before they crumbled in June 2007.

The collapse cost investors in the funds about $1.6bn (£0.95bn).

E-mail exchanges

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.

Bear Stearns office

In March last year, Bear Stearns became one of the most high-profile victims of the credit crunch, after American banking giant JP Morgan agreed to buy it with the backing of the US Federal Reserve.

The two men are among the first financial executives to have faced charges since the global financial crisis began.

Mr Cioffi, who was also facing charges of insider trading, left court, saying only: "I'm happy".

During the month-long trial, prosecutors focused on e-mail exchanges between the two defendants, which, they argued, showed the two knew the funds were in trouble, but did not tell their bosses or investors.

The complexity of the case meant that a conviction was always going to be difficult, observers said.

"It's not a total surprise. It sends a strong message to prosecutors that they need to be able to prove their case. Just losing money in and of itself is not a crime," said Jim Angel, associate professor of finance at Georgetown University.

Inside information

The case could also have important implications for future fraud trials.

"The government will clearly need to rethink whether and when to assert criminal responsibility in connection with the financial meltdown," said Jacob Frenkel, partner at law firm Shulman, Rogers, Gandal, Pordy & Ecker.

Other financiers are facing trial following charges of insider trading at separate hedge funds.

Last week, 14 individuals were charged in connection with an alleged insider trading scheme at US hedge fund Galleon Group.

Three weeks previously, Galleon founder Raj Rajaratnam and five others were arrested.

Mr Rajaratnam and his co-defendants are alleged to have gained $20m in illegal profits thanks to inside information on firms including internet search engine Google and technology company AMD.

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