Bear Stearns arrests give a face to crisis

The arrests of two former Wall Street investment fund managers gave the nation a pair of alleged villains in the subprime mortgage crisis.

With their arrest Thursday on a nine-count indictment, two former investment fund managers for banking titan Bear Stearns are now the public face of the nation's mortgage finance meltdown.

The U.S. Attorney's Office in Brooklyn brought the securities and wire fraud charges against Ralph Cioffi, 52, and Matthew Tannin, 46, respectively the founder of two Bear Stearns hedge funds for ultra-wealthy investors and the funds' manager. The two were also charged with conspiracy, and the Securities and Exchange Commission brought civil charges against the pair Thursday.

The indictment alleges that the two deceived investors into believing the hedge funds, which held special mortgage bonds that were backed with now-toxic subprime home loans, were healthy when they knew clearly they were not. The end result was that well-heeled investors like the one described in the indictment, Major Investor 1, collectively lost more than $1.5 billion.

Despite that assessment, the pair allegedly told investors the market downturn was an ''awesome opportunity'' to buy, when in fact Cioffi transferred $2 million of his own money out of the fund, allegedly without disclosing that to investors who believed the pair had their own money at stake, too.

''The Bear Stearns indictments present a remarkable trail of e-mails regarding what the Bear Stearns managers knew, when they knew it, and what they told investors. The tale the alleged emails tell, if true, should make an investor's blood run cold,'' Kurt Eggert, a law professor at Chapman University in Orange, Calif., said in a written analysis of Thursday's indictment.

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