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Nov-07-2009UPDATE 1-Wall St trial summations hone in on 'toast' email(topic overview)
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NEW YORK, Nov 6 (Reuters) - The government's allegations of fraud against two former Bear Stearns hedge fund managers were built on "hindsight bias," including emails selected out of context, a defense lawyer told a jury in closing arguments on Friday at their trial in New York. Ralph Cioffi, 53 and Matthew Tannin, 48, have denied charges of securities fraud, wire fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from problems with subprime mortgage-backed securities in 2007 that fueled the market meltdown. "This is a case that is built on hindsight bias," Tannin's lawyer, Susan Brune, told the jury in Brooklyn federal court. She said prosecutors alleged the managers "knew what the future held and they hatched a criminal scheme to lie to investors," but they had not proven a motive. Brune, citing emails by Tannin, said he "went out of his way" to ensure the investors, institutions and individuals, knew the risks of putting their money in hedge funds. She said "the idea that it is proof of a fraud that someone raises a doubt and says to his boss 'let's talk about it'" is wrong. The government's evidence focused on emails in which Tannin and Cioffi expressed their fears to each other and colleagues about what they believed were chaotic and dislocated markets at the time. In a closing summation on Thursday, a U.S. prosecutor said the hedge fund managers told "black and white lies" about the health of the funds in the first half of 2007, even though they knew market conditions were bad. [1] NEW YORK, Nov 5 (Reuters) - In closing arguments in the trial of the first high-profile Wall Streeters on fraud charges stemming from the financial crisis, a U.S. prosecutor said two hedge fund managers told "black and white lies," but a defense lawyer attacked the government for "misleading" the jury. U.S. prosecutor Ilene Jaroslaw said on Thursday former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin lied to investors in the early months of 2007 about the health of their funds even though they were seeing some of the worst market conditions ever. "This case is not about hedge fund strategy or what happened in the market in 2007," Jaroslaw told a Brooklyn, New York, federal court jury. "What it is about, is the two defendants lied to their investors. It's not about the future. but a case of black and white lies," she told the jury, which is expected to begin deliberations on Monday, nearly a month after the trial began on Oct. 13.[2]
NEW YORK — Two former Bear Stearns hedge fund managers charged with lying to investors always were honest about the risks of investing in securities linked to the volatile subprime mortgage market, a defense lawyer told a jury on Friday. A co-worker who testified at a federal trial in Brooklyn "couldn't recall one meeting where they did not discuss the risks," attorney Susan Brune said in closing arguments. Ralph Cioffi and Matthew Tannin made sure investors knew that with their investment strategy there were "rewards, but there's risks too," Brune said. "That's the deal."[3]
NEW YORK, Nov 6 (Reuters) - The trial of two former Bear Stearns hedge fund managers on fraud charges ended on Friday with sharp arguments over the meaning of the word "toast" in one defendant's email about the subprime mortgage market. Ralph Cioffi, 53, and Matthew Tannin, 48, have denied allegations that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from problems with subprime mortgage-backed securities in 2007 that fueled the market meltdown. Central to the government's case in a New York court is an April 22, 2007 email by Tannin to his boss Cioffi, who worked for Bear Stearns for 25 years. In it, Tannin refers to another colleague's report on collateralized debt obligations, securities backed by a pool of debt such as mortgages.[4] The past couple of days have shown us a decidedly softer side to the perhaps stereotypical tough-talking New York defense attorney. One of these displays happened Friday in Brooklyn where two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin (pictured), are on trial on various fraud counts, accused of lying to their investors about the health of two funds as they were collapsing in 2007. Susan Brune, a white-collar defense attorney, is representing Tannin. During her summation on Friday, Brune argued that the prosecution deliberately mischaracterized her client's state of mind. Prosecutors have alleged that in an April 2007 conference call with investors, Tannin lied in saying he was "comfortable" with the funds' performance, when days earlier, he had emailed Cioffi over concerns about a market research report. He wrote that if the report is "ANYWHERE CLOSE to accurate, I think we should close the funds now." Brune said the email, when read in its entirety, actually showed that at the same time that Tannin had concerns, he saw a potential buying opportunity. She said Tannin and the other managers became "excited" because they believed they could use the research as a tool to help turn the funds' performance around, according to reporting by WSJ's Amir Efrati, who attended.[5] The trial of two former Bear Stearns hedge fund managers accused of fraud is drawing to a close, with closing arguments in the case scheduled to begin tomorrow. Defense attorneys for Ralph Cioffi and Matthew Tannin rested their cases in Brooklyn, N.Y., federal court yesterday. The two men, who are accused of misleading investors in their two hedge funds, did not take the stand in their own defense.[6] Ralph Cioffi, after his arrest Prosecutors sought to hammer home their case against two former Bear Stearns hedge fund managers yesterday, emphasizing what they called the two men'''s '''black and white''' lies. '''This trial isn'''t really about hedge fund strategy,''' Ilene Jaroslaw, assistant U.S. attorney, told jurors during her closing argument yesterday. '''This case is about what the defendants said and what they did, and all their lies.''' Those defendants, Ralph Cioffi and Matthew Tannin, are accused of misleading investors in their two hedge funds, which collapsed two-and-a-half years ago amidst the early days of the subprime mortgage crisis.[7] If Bear's internal reports were accurate, Tannin suggested, "I think we should close the funds now," and "the entire subprime market is toast." The situation became so dire that Cioffi pulled $2 million of his own cash from the fund, but the pair still told investors that they should stay in and that the outlook was good, prosecutors said. "The trial isn't really about hedge fund strategy," Assistant U.S. Attorney Ilene Jaroslaw said Thursday in her closing argument. "This case is about what the defendants said and what they did, and all their lies." Cioffi's attorney, Dan Butswinkas, countered in his closing argument on Friday by accusing the government of relying on misleading, out-of-context "e-mail snippits" to try to turn his client into a scapegoat for a crash that was unpredictable and out of his control. "We have proven that the government's case lacks credibility," he said. Jurors were expected to begin their deliberations on Monday.[3]
If we believe the (report) is ANYWHERE CLOSE to accurate I think we should close the funds now," said part of Tannin's email, cited in the June 2008 indictment. "The reason for this is that if (the report) is correct then the entire subprime market is toast." Tannin's lawyer, Susan Brune, told the Brooklyn federal court jury in her closing summation that U.S. prosecutors built their case on "hindsight bias" and emails selected out of context. "They want to freeze-dry that Matt email and stick it to him," Brune told the jury, which is scheduled to begin deliberations on Monday, almost a month since the trial began on Oct. 13. "It is absolutely not right," she said. Cioffi and Tannin have denied charges of securities fraud, wire fraud and conspiracy contained in a June 2008 indictment that accuses them of lying and misleading institutional and individual investors, who lost up to $1.6 billion in two funds. Assistant U.S. Attorney James McGovern told the jurors, "If you read this email, 'toast' is not a good thing. It is not saying you hedge against the 'toast'. It is saying the market that we deal in is over. "There is no other reading of this email," McGovern said with emphasis.[4]
The collapse of the High-Grade Structured Credit Fund and a more highly-levered sister fund in 2007 cost investors some $1.6 billion. Both men have pleaded not guilty. Prosecutors allege that they knew their funds were in trouble but assured investors that nothing was amiss; Cioffi, the funds''' manager, is also charged with insider trading for allegedly moving $2 million of his own assets out of one of the funds before their collapse. U.S. District Judge Frederic Block said he expects to charge the jury and have deliberations begin on Monday. Tannin, the funds''' chief operating officer, hopes he doesn'''t have to wait even that long, asking the judge to find the government'''s case against him wanting. Tannin'''s lawyers asked Block to acquit their client, arguing that the prosecution have failed to prove any of the allegations against him.[6] The jury will begin deliberations next week, perhaps as early as Monday. For its part, the government insisted that this was not a case about investment strategies gone awry, the risk-taking inherent in hedge fund management or the market turmoil of 2007. As a prosecutor, Ilene Jaroslaw, argued in her closing remarks, it'''s a case about '''black and white lies.''' Mr. Cioffi and Mr. Tannin misled their investors on two pieces of important information, she said: the defendant'''s so-called skin in the game or the money they personally invested in their funds and the amount of investor redemptions leading up to the funds''' collapse. '''They had a duty to investors to speak the truth,''' she argued. '''They cannot tell half truths, make misleading statements or intentionally omit an important fact. They cannot lie. They had that duty in up markets and down markets.''' Both sides have weaknesses. The defendants did in fact make comments to investors regarding both redemptions and their personal investments in the funds that appear to be at odds with reality. As for the prosecution, its case is weak on motive evidence. The government alleged in its opening statement that Mr. Cioffi and Mr. Tannin lied to salvage their bonuses and reputations. If, as the government says, they knew the funds were going to collapse, it is doubtful there would have been bonuses to collect. Narrative A: After successfully operating their funds for over three years, the defendants decided to go criminal when the going got rough. They lied to investors, telling them only what they wanted to hear to keep them in the funds.[8]
NEW YORK — A defense attorney says the government failed to make its case against two former Bear Stearns hedge fund managers charged with lying to investors. The attorney told a federal jury in closing arguments Friday that the government built its case on "e-mail snippets" that were taken out of context.[9] NEW YORK, NY November 06, 2009 '''Closing arguments have wrapped up in the first criminal trial of former Wall Street executives related to the subprime mortgage crisis. Ralph Cioffi and Matthew Tannin are accused of misleading investors about the health of their Bear Stearns hedge funds, which collapsed in the summer of 2007.[10] Defense lawyers made their final arguments on Friday in the trial of two former Bear Stearns & Cos. hedge-fund managers, saying the prosecutors' case "lacked credibility" and asking the jury to be objective amid public outrage over Wall Street's role in the economic crisis. The former managers, Ralph Cioffi and Matthew Tannin, are accused of lying to their investors about the health of two mortgage-related funds that collapsed in 2007. Those failures were the first of several blows that felled Bear Stearns and.[11]
Mr. Butswinkas called "the credibility of the prosecution's case into question." Mr. Cioffi and his former Bear Stearns colleague, Matthew Tannin, are on trial on charges that they defrauded investors in two Bear hedge funds.[8]
A prosecutor argued the e-mails showed that Ralph Cioffi and Matthew Tannin were guilty. Cioffi and Tannin were accused last year of encouraging investors to stay in their hedge funds, heavily exposed to subprime mortgages, even as they knew the credit market was in serious trouble.[9] The NYT has a report out Friday on how just how things are shaping up over there. According to the story, federal prosecutors spent nearly three hours on Thursday things up with their closing remarks. The gist of the argument is simple: the pair, Ralph Cioffi and Matthew Tannin (pictured) knew their funds were in trouble in the spring of 2007 and had lied to investors.[12]
REPORTER: The trial has lasted more than three weeks. The prosecution has tried to show that Cioffi and Tannin lied repeatedly to investors, touting their funds even though they knew things were headed south. The defense in their closing arguments said the government isn'''t giving the whole story, that it consistently took lines from emails out of context, and the government is using a '''gotcha''' tactic that'''s just plain wrong. Matt Tannin'''s lawyer broke down in tears at the end of her closing statement, pleading with jurors to send Tannin home to his family.[10] The funds, packed with subprime mortgage-backed securities, failed in the summer of 2007, costing investors as much as $1.6 billion. Cioffi's lawyer, Dane Butswinkas, in his closing argument on Thursday, attacked the government case for giving jurors a "misimpression" and "misleading sound bites" from emails that had implied conspiracy where there was none. The two men could be imprisoned for up to 20 years if convicted by the jury, which is expected to begin its deliberations on Monday.[1]
One of Tannin's lawyers is expected to offer a summation on Friday. Prosecutors contend that at least by March 2007 -- more than 18 months before the full extent of the financial crisis became clear -- Cioffi and Tannin promoted to investors two funds crammed with subprime mortgage-backed securities, while privately expressing, in their emails, fears of a market calamity.[13]
According to the NYT, Butswinkas said the details of the strategies used by the two hedge funds run by the men and the context of the communications from Cioffi and Tannin raised doubts about the prosecution's case. 'If you look at some of the tactics I just showed you, do they make you pause?' Mr. Butswinkas asked the jury. 'If they would, then that's reasonable doubt.' Butswinkas is expected to continue his closing remarks on Friday followed by a statement by Tannin's lawyers. [12] In the case of two former Bear Stearns hedge fund managers, that line was reprised on Thursday by a defense lawyer none other than Mr. Sullivan'''s law partner, Dane Butswinkas.[8] Dan Slater, a former litigator and a freelance journalist in New York, is following the criminal trial of two former Bear Stearns hedge fund managers for DealBook.[8]
The eventual implosion of the defendants' hedge funds cost 300 investors $1.6 billion and started a domino effect that nearly led to the demise of Bear Stearns itself.[3] The failure of the High-Grade Structured Credit Fund and a more highly-levered sister fund cost investors some $1.6 billion and helped lead to the eventual collapse of Bear Stearns itself. Jaroslaw blasted Cioffi for lying '''because the market was in turmoil and he knew it.[7]
The confidence of investors was in jeopardy. He lied to give them false confidence.''' '''When they hit rough seas for the first time in the history of the funds, they thought the law and the rules applied to everyone else but them,''' she added. Unsurprisingly, Cioffi'''s lawyer took aim at just about everything the prosecution did, from where the case was tried to their use of evidence.[7]
All pretty normal, as summations go. It wasn't so much the words as the demeanor, that was atypical. Efrati reports that Brune's voice got soft and she looked as if she might tear up several times. At the conclusion of her remarks, her voice quivered and she began crying as she implored the jury to acquit her client. "Send Matt home to his family," she said. In White Plains, N.Y., yesterday (in a Southern District of New York courthouse), Bernard Kerik, a former New York Police Commissioner who rose to be nominated to be head of the Department of Homeland Security before his career tumbled in scandal, pleaded guilty to eight charges including tax fraud and lying to White House officials. The NYT, in its coverage here, reports that one of Kerik's lawyers, Michael F. Bachner, rubbed Mr. Kerik's back during the 90-minute proceeding. Maybe he should change his name to BACKner.[5] Mr. Sullivan backed out of the case to focus on the representation of Henry T. Nicholas III, the Broadcom co-founder who was indicted last year on charges of fraud and drug-related crimes, among others. In bringing out his mentor'''s famous line, Mr. Butswinkas was referring to what he argued was the government'''s strategy in the case. Perhaps he should have tweaked it to a less catchy but more accurate formulation: When you look at the world through a microscope, everything looks dirty. That, essentially, is the defense'''s characterization of how the government has played its hand in the prosecution by taking seemingly damning comments made in e-mail messages and phone calls and presenting them to a jury without mentioning the supposedly exculpatory context.[8] Cioffi, 53, and Tannin, 47, pleaded not guilty last year to conspiracy and fraud charges — the first criminal case to hit Wall Street amid the housing market meltdown.[3] The case is the first against prominent Wall Street executives charged with fraud stemming from the financial crisis. It hasn't gone entirely well for the government.[12]
'''The government has to bring the case in the right place,''' and since the alleged malfeasance took place at Bear'''s offices in Manhattan, that means Manhattan federal court. Butswinkas is set to finish his closing argument tomorrow, followed by that of Tannin'''s lawyers. [7] The prosecutors have been maligned in the press for what many saw as a weak and poorly-planned case. Dane Butswinkas said he was '''surprised to hear the prosecution say that the details aren'''t important,''' and suggested that the government'''s tactics created '''reasonable doubt.''' He also questioned the venue for the trial, Brooklyn, N.Y., federal court, arguing that the case should have been held across the East River. '''The government didn'''t follow the law,''' he told the jurors.[7]
Butswinkas also urged the jury to question whether the New York City borough of Brooklyn was the correct place for the government to bring the case because the alleged offenses took place in the borough of Manhattan. "If you find that none of the conspiracy happened outside of Manhattan. you stop there," he said.[13]
The case would then head to the jury. Reports the Times, Cioffi "seemed confident he would be exonerated as he chatted with family members and friends before closing statements."[12] 'If you are trusted with other people's money on Wall Street, you can't defraud them,' said AUSA Ilene Jaroslaw, to the jury. Cioffi and Tannin acted like "masters of the universe" and "thought the laws and rules applied to everyone else but them," she added.[12]
Funds managed by Cioffi and Tannin were laden with subprime mortgage-backed securities and collapsed in June 2007 after years of consistent success.[13]
The firm barely avoided bankruptcy in a rescue buyout by JP Morgan Chase & Co. At trial, prosecutors showcased a series of e-mails they alleged revealed behind-the-scenes alarm at the hedge funds as their investments began to slide. [3] With all the bustling around Thursday on the blockbuster Galleon hedge-fund news, one could almost be forgiven for forgetting about the other big hedge-funders in trouble the Bear Stearns duo currently in the midst of their fraud trial over in Brooklyn.[12]
SOURCES
1. US case against Bear Stearns men flawed -- lawyer | Markets | Markets News | Reuters
2. UPDATE 2-Sparring over evidence at Wall Streeters trial | Reuters
3. The Associated Press: Defense asks jury to clear ex-hedge fund managers
4. UPDATE 1-Wall St trial summations hone in on 'toast' email | Reuters
5. New York Defense Attorneys Showing Their Empathetic Sides - Law Blog - WSJ
6. Bear Hedge Fund Trial To Go To Jury On Monday | FINalternatives
7. Government, Defense Attorneys Trade Shots In Bear Stearns Hedge Fund Trial | FINalternatives
8. Choice for Bear Trial Jury: Two Clashing Stories - DealBook Blog - NYTimes.com
9. The Associated Press: Defense asks jury to clear ex-hedge fund managers
10. WNYC - News - Closing Arguments Heard in Bear Stearns Trial
11. Cioffi Lawyer: Case Lacks 'Credibility' - WSJ.com
12. Bear Hug? Jury to Get Fraud Case Soon - Law Blog - WSJ
13. Sparring over evidence at Wall Streeters trial | U.S. | Reuters
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