There was no getting around Thursday’s arrests of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, says an individual familiar with the case.
Despite pleas and efforts by Cioffi’s and Tannin’s lawyers, federal prosecutors were intent on charging the two with securities fraud and insider trading. The source familiar with the investigation says prosecutors insisted on arresting the two, despite assurances from counsel for both men that they would bring them to court. Thursday’s events follow a string of arrests and indictments this week in Chicago, Dallas, Houston, Baltimore, and Sacramento.
In a statement released to The Am Law Daily, Cioffi’s attorney, Edward Little of New York’s Hughes Hubbard & Reed, said he is “shocked and disappointed” by the government’s decision to charge his client. Nearly ten FBI agents took Cioffi, 52, into custody in a parking lot near his home in Tenafly, N.J., shortly after 7 a.m. Along with the 46-year-old Tannin, who was arrested at his Manhattan home, Cioffi was then taken to the FBI’s New York field office at 26 Federal Plaza for a “perp walk.”
“The subprime crisis took everyone by surprise, including the Fed, Treasury, and dozens of the largest financial institutions,” said Little. “Ralph Cioffi’s funds lost money in exactly the same way. Because his funds were the first to lose, [that] might make him an easy target, but [it] doesn’t mean he did anything wrong.”
Calls to Tannin’s lawyers–Susan Brune and Nina Beattie of New York’s Brune & Richard–were referred to an external public relations agency.
Assistant U.S. attorneys Sean Casey, John Nathanson, Patrick Sinclair, and James Gatta are handling the case for the U.S. attorney’s office in Brooklyn.
The spate of law enforcement actions tied to the housing crisis appears to signal some form of coordination–or piggybacking–at the federal district level. The FBI has been particularly busy ramping up its mortgage fraud efforts, announcing today that more than 400 defendants had been charged in 144 cases since March 1 as part of Operation Malicious Mortgage. Still, Attorney General Michael Mukasey declined to create a national mortgage fraud task force in early June.
“The government is looking for a way to bring investor confidence back to the mortgage markets, so it’s all coordinated,” says litigation practice chair Scott Meyers from Chicago’s Levenfeld Pearlstein. “It’s similar to the tact they took in the Enron days and before that with respect to some of the banking and insider trading scandals.”
Meyers sees a three-pronged attack by which the government is using federal prosecutors to ease consumer confidence problems. “They’re saying, ‘Look, we found out what the problem was, we’re going to punish the people who caused it, and we’ll fix it going forward so everybody can feel comfortable buying a house again,” he says. While Meyers doesn’t have any mortgage fraud clients, he half-jokingly adds that “it’s only 10:30 [a.m. CDT].”
