A little more than a year ago, they were masters of the universe, pulling down eight-figure salaries as hedge fund managers at the vanguard of a booming mortgage market.
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Ralph R. Cioffi, 52, of Tenafly, N.J., was a golden boy at Bear Stearns as the manager of two high-performing hedge funds which repackaged subprime mortgage debt.
In his spare time, he bankrolled independent films, and purchased property in Florida, Rhode Island and Vermont.
Matthew M. Tannin, 46, worked with him as a portfolio manager, lived in a palatial pre-war coop on the Upper West Side and was active in his synoguge.
Yesterday, however, the two men were paraded in handcuffs before a phalanx of TV cameramen, and arraigned in federal court in Brooklyn on charges of conspiracy, wire and securities fraud in connection with the collapse last summer of those two funds – now seen as the first tremor of a worldwide upheaval related to subprime mortgage debt.
The disintegration of the funds cost investors $1.6 billion and set in motion a series of cascading collapses, resulting in the write-down of more than $350 billion in losses and the demise of Bear Stearns itself.
Perhaps the greatest irony yesterday was that these most networked of men, who were tuned into their Blackberries day and night, are being prosecuted through their own incriminating emails to one another.
In its indictment, the government uses email messages confiscated from both their home and work accounts to make the case that Cioffi and Tannin knowingly misled investors about the funds’ impending crackup to save their own jobs and reputations – in Cioffi’s case, going so far as to withdraw $2 million of his money from one of the funds, even as he reassured investors.
“If I can’t [turn the funds around] I’ve effectively washed a 30-year career down the drain,” Cioffi says in a June 9, 2007 email with the collapse imminent, according to the indictment.
The two are the first traders to face criminal charges in connection with the sub-prime mortgage crisis in a case that is likely to be a bellwether of the government’s ability to prosecute those who used highly complex financial transactions.
Lawyers for the two men said yesterday that the charges against their clients are misguided and they would be vindicated.
The two men’s downfall, according to the 28-page indictment, began with the downing of vodka shots on March 2, 2007 to celebrate the funds’ survival after a gutwrenching February during which had made big and highly leveraged bets on mortgage-related securities. Cioffi directs Tannin and two others to keep quiet about the “difficulties,” even with “other members of the funds’ team,” according to the indictment.
As the situation continued to deteriorate, however, Cioffi acknowledges later in March: “I’m fearful of these markets. Matt [Tannin] said it’s either a meltdown or the greatest buying opportunity ever. I’m leaning more towards the former.”
At another points, he emails a colleague: “I’m sick to my stomach over our performance in [M]arch.”
Yet both men continued to tout the funds to investors, with Tannin reportedly saying he was so confident that he iwas investing more of his own money.
“[B]elieve it or not – I’ve been able to convince people to add more money, Tannin confides in late March, 2007 to another team member, sounding incredulous.
Cioffi, meanwhile, had begun to transfer two million dollars of his own money out of one of the funds, beginning on March 23, 2007, but did not share that information with investors, who took heart from what they believed to be his and Tannin’s personal involvement, according to the government.
By late April, the financials had become so dire that Tannin advised Cioffi they should shut the funds, or “get very, very aggressive.”
“The subprime market looks pretty damn ugly,” he said in support of shutting down. “. .. if [the CDO report] is correct, then the entire subprime market is toast.”
Yet two days afterward, he and Cioffi assured senior management at Bear Stearns that the funds were in good shape., according to the indictment An three days later, Tannin told investors, “. . .we’re very comfortable with exactly where we are. . . . [T]he structure of the Fund has performed exactly the way it was designed to perform.”
In June, Cioffi was removed as manager as the situation continued to ravel. In July, the funds were closed.
Cioffi left Bear Stearns by mutual agreement on Nov. 28, 2007, according to a company filing with the New Jersey Bureau of Securities which stated that Cioffi was “under internal review for fraud or wrongful taking of property, or violating investment-related” rules or regulations.
He now runs a company, RCAM Capital LP, which is listed at his Tenafly address, according to NorthJersey.com.
Since 2006, he has also moonlighted as a film producer, bankrolling two projects. The first, “Just Like My Son,” a tale about a thief who mentors an orphan and which stars Rosie Perez, was released at the Tribeca Film Festival to positive reviews. The second, “Follow the Prophet,” is yet to be released.
Cioffi is a native of South Burlington who earned a business degree at St. Michael’s College before going to work in the financial services industry.
Tannin, who had been with Bear Stearns since 1994, has a law degree from the University of San Francisco and clerked for the California Court of Appeals before going into the financial services industry.
To read the indictment, click here:
To read the SEC lawsuit against Cioffi and Tannin, click here:
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