Failure To Launch

Yesterday's complete acquittal of former Bear Stearns fund managers Matthew Tannin and Ralp Cioffi came as a bit of a shock, but one juror said after the verdict was delivered that the Government's fraud case against the two men was so pathetic that she says she would in fact choose to invest with the two men if she could.

The panel of eight women and four men who spent the past month hearing testimony in the case took only nine hours to find them not guilty on all six counts. During interviews after the verdict yesterday, several jurors said the government failed to prove the defendants defrauded investors who lost $1.6 billion in the two hedge funds run by the men -- both of which were mostly made up of subprime mortgage-backed securities.

The funds collapsed in 2007, as did Bear Stearns itself less than a year later. The defendants, according to juror Serphaine Stimpson, were made “scapegoats for Wall Street.”

Cioffi, 53, the portfolio manager for the two funds, and Tannin, 48, their chief operating officer, went on trial Oct. 13 in federal court in Brooklyn, New York, on charges of conspiracy, securities and wire fraud. Each faced as many as 20 years in prison if convicted.

Their two funds failed when prices for collateralized debt obligations linked to home loans fell amid rising late payments by borrowers with poor credit or heavy debt. Bear Stearns was purchased the next year by New York-based JPMorgan Chase & Co. The government alleged Cioffi and Tannin continued to seek investors in their funds after they learned they were financially unsound.

Stimpson said she came into the trial thinking both Cioffi and Tannin were guilty of the fraud, insider-trading and conspiracy charges. She said she began to have second thoughts as the testimony progressed and defense lawyers “tore the government witnesses apart.”

This is a pretty big blow against both the Bush and Obama DoJ. The two men were charged with fraud in June 2008 by Mukasey and the Bushies, and Holder and the Obamacons couldn't finish the job.

Fraud's pretty simple: either they had the intent to mislead investors, or they didn't. The government simply could not prove their case on that matter, and the two accused walked. If anything, these two guys did everything they could to try to save their collapsing fund.

Aram Hong, a juror from Woodside, Queens, said the exchanges between Cioffi and Tannin shown to the jury proved to her that the two men were working “24-7” to save the funds in the months before they collapsed. She noted a defense exhibit that showed the fund managers were working at 4 a.m.

“If this was really a fraud case, they wouldn’t have worked that hard,” said Hong, 27, a food and beverage director at the Iroquois Hotel in midtown Manhattan, adding that she would invest with the two men if she had the money.

Hong said another e-mail showed the defendants looking at all the components of the market, not just the negative. She said they “took the time to compare and consider all elements.”

The real guilty parties are the government agencies who failed to apply sufficient oversight to the subprime market, and then colluded with the banks to bail them out with our money. Chris Dodd's bill to take that regulatory power away from those who screwed up is a definite start, but there's simply no way it will even get out of the Senate Banking Committee, let alone be signed by Obama.

The only question I have is when the next bubble will pop and drive us into a double-dip recession.