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June 16, 2008 3:21 PM

Former Bear Stearns Managers Could Face Securities Fraud Charges

Posted by Brian Baxter

According to a story in today's Wall Street Journal, federal prosecutors are mulling securities fraud charges against the managers of two Bear Stearns hedge funds that collapsed spectacularly last summer. Bear_stearns_logo_2

Ralph Cioffi and Matthew Tannin have been the subject of a yearlong investigation by the U.S. attorney's office in Brooklyn into whether they "intentionally misled investors" by claiming that all was well with the High Grade Strategy and Enhanced High Grade funds before they both filed for bankruptcy protection in July 2007. The filing cost investors an estimated $1.6 billion and commenced a series of write-downs in the mortgage securitization market that has cost financial firms worldwide roughly $387 billion, reports the Journal.

Represented by Hughes Hubbard & Reed's Edward Little, Cioffi was the senior managing director of Bear Stearns Asset Management (BSAM). Tannin, represented by Susan Brune and Nina Beattie of New York boutique Brune & Richard, was the COO of the two failed Bear Stearns funds as well as a senior managing director of BSAM. (Barry Berke, the cochair of the white-collar defense and SEC regulatory practice at New York's Kramer Levin Naftalis & Frankel, is representing Bear Stearns in the Justice Department's criminal investigation as well as various civil proceedings related to the implosion of the two funds.)

The closing of the two funds signaled the beginning of the bank's ultimate demise, with the bulk of the company eventually being sold for $1.4 billion to JPMorgan Chase at $10 a share in May.

In other Bear Stearns news ...

Legal department refugees are finding solace in law firms. Today, Kirkpatrick & Lockhart Preston Gates Ellis named Philip Cedar a partner in the New York office's financial services practice. Cedar was a senior managing director of Bear's legal department and a group practice leader for its mortgage- and asset-backed securities division. He had been a lawyer at Skadden, Arps, Slate, Meagher & Flom prior to joining Bear, according to a report in sibling publication Legal Week.

David Strumeyer, the former COO of the investment bank's legal and compliance division, was named executive director of Weil, Gotshal & Manges in early March.

And then there is Michael Solender, someone who's not afraid of risk. The former general counsel of Bear's 500-person legal department, Solender, 44, joined Washington Mutual as its new general counsel in early June. Seattle-based WaMu, the largest thrift in the U.S., was once one of the largest providers of residential mortgages in the country. After sustaining billions in losses, WaMu exited that business in 2007.

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